Hold HCL Technologies; target of Rs 1550: Prabhudas Lilladher

Prabhudas Lilladher's research report on HCL Technologies

The revenue growth performance was tad below our estimates, largely attributed to the P&P business (down 7.1% QoQ CC), while Service business growth was flat CC QoQ despite macro volatility. The revenue guidance improvement at the lower band by 100bps eliminates the odds of hitting the worst, while improved discretionary spends on Financial Service and Technology verticals further boosts management confidence to deliver growth within the guidance band. However, the tariff sensitive verticals (Manufacturing, Retail, Healthcare) continue to see execution deferrals and slowdown in decision making, which might pose additional risk to achieve the upper end of the guidance. ER&D vertical continued to be on a weak footing, down 0.5% QoQ CC, due to weakness in Automotive and Life Science, which create additional growth headwinds. Despite the fact, the management is doubling down on AI investments and fuel S&M engines to drive differentiated offerings through agentic AI. Hence, the company is consciously taking a margin hit in the near-term, lowering margin guidance to 17-18% (18-19% earlier), to secure long-term growth. We are baking revenue growth of 3.4% and 5.8% YoY CC over FY26E & FY27E respectively, while expecting a decline in margins of 80bps YoY in FY26E followed by an improvement of 80bps in FY27E. Post the near-term correction, the stock is currently trading at 25x/22x FY26E/FY27E, hence we upgrade to HOLD (earlier REDUCE).

Outlook

We are baking in USD revenue/Earnings CAGR of 5.8%/7.3% between FY25-27E. The stock is currently trading at a PE of 25x/22x FY26E/FY27E earnings. We are assigning a PE multiple of 21x to FY27E earnings and arrive at a TP of INR 1,550. We upgrade our rating on the stock from Reduce to HOLD.

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

HCL Technologies - 15072025 - prabhu