HCL Tech stock jumps 4% after signing $2.1 billion deal with Verizon Communications

After bagging a $2.1 billion contract from Verizon Communications to manage its networks for the business customers, the shares of HCL Technologies surged 4.4 per cent to Rs 1,185.55 on the BSE in Friday’s intra-day trade.

The partnership combines Verizon’s networking power, solutioning, and scale with HCLTech’s market leading Managed Service capabilities to usher in a new era of large-scale wireline service delivery for enterprise customers, these companies said in a news release.

It is expected that the deal will have a positive impact in terms of revenue over the next six years which will begin in November 2023 with an estimated new total contract value of $ 2.1 billion over the term.

In the meantime, HCL Tech’s shares were trading close to its 52-week high of Rs 1,202.70 touched on July 5, 2023. In the last six months, the stock of the company has underperformed the market by gaining 6 per cent, as compared to 8.4 per cent rise in the S&P BSE Sensex.

HCL Tech had posted a weak June quarter (Q1) but maintained its FY24E guidance (both on growth and margin). The revenue miss was largely due to ER&D services and the Telecom & Media vertical which had an aggregate revenue impact of -1 per cent and -1.3 per cent QoQ due to cuts in discretionary spending.

The company’s growth acceleration in H2FY24 needs to be steep so that it can meet the guidance and offset the headwinds in Q2 of soft Q1 bookings and full-quarter impact of the Telecom vertical (guidance implies CQGR of 2.8 to 4 per cent over Q2-Q4FY24E), analysts at HDFC Securities said in result update.

Key positives from the commentary include deal pipeline at all-time high (18 per cent QoQ and 26 per cent YoY) and expectation of strong deal bookings in Q2 (USD 2bn+); bottoming-out of the Telecom vertical (8 percent of revenue) and ER&D services (15 percent of revenue); relative strength in BFSI, Manufacturing and Life-science & Healthcare verticals (on expected lines and largest deal in Q1 from healthcare vertical), the brokerage firm said.