HCL Tech shares drop 2% on mixed Q1 results, guidance; here are fresh target prices

HCL Technologies Ltd shares fell 2 per cent in Tuesday's trade, as the IT major delivered a decent quarter on the revenue front, but disappointed in terms of margins and total contract value (TCV). Analysts noted that the revenue for June quarter at $3,545 million was in line with the consensus estimates. It was down 0.8 per cent on sequential basis in constant currency (CC) terms. EBIT margin came in at 16.3 per cent, which was less than analyst estimates of 17.5 per cent. Net new TCV bookings stood at $1.8 billion. 

Analysts said the net new TCV is coming at the expense of sharper reduction in like-for-like renewals, which could limit net new TCV-to incremental revenue conversion. They, however, remained positive on HCL Tech for now. 

On Tuesday, the stock fell 1.84 per cent to hit a low of Rs 1,590.10. It recovered and was later trading 0.44 per cent higher at Rs 1,612.75 on BSE. 

For FY26, HCL Tech increased the revenue guidance to 3-5 per cent from 2-5 per cent YoY in CC terms. In contrast, it lowered the EBIT margin guidance to 17-18 per cent from 18- 19 per cent. There was an unanticipated drop in utilisation as HCL Tech had hired specialized skills in March for a large deal which is taking time to ramp up. Continued investments in sales and marketing and AI capabilities to address growth momentum and one-time cost on account of the restructuring program on both the employee and non-employee sides also weighed. 

Nirmal Bang noted that Q1 is usually a soft quarter for HCL Tech and some part of the sequential revenue decline can be attributed to its software business, which was down 3 per cent on YoY CC basis, though the ARR at $1.06 billion was up 1.3 per cent YoY. 

"This augurs well for future visibility and HCLT is working on improving the subscription for SaaS revenues. The rest of the decline was on the back of slower ramping up of large deals signed earlier," it said while suggesting a target price of Rs 1,670 on the stock.

JM Financial said the underlying construct was better with Services (down 0.1 per cent CC QoQ) holding up. Margin, however, declined 160 basis points, surprising negatively, it said.

"Lower utilisation (down 80 bps), as capacity ramp in March for a Hi-tech deal did not get fully absorbed, weighed. This is a bit counterintuitive, in our view, as growth was in-line with quarter beginning commentary. In fact, HCL raised lower end of its guidance, suggesting no growth deceleration. It however cut its margin guidance by 100bps to 17-18 per cent. Restructuring cost, higher S&M investments and lower utilisation were few of the reasons cited. R

MOFSL said  HCL Tech remains the fastest-growing large-cap IT services company, and it likes its all-weather portfolio. "We reiterate our BUY rating on HCLT with a target of Rs 2,000, implying a 23 per cent potential upside," MOFSL said. 

"In Q1, eight of nine contract renewals occurred at higher revenue run rates, reinforcing confidence in its execution, supported by increased discretionary spending in key verticals like Financial Services. As a result, we revise our revenue estimates upward by 1–2 per cent, factoring in strong growth visibility and a conservative margin stance within the guided range. This supports a modest re-rating of the stock, raising the PE multiple to 22.5x (from 22x), and maintaining our ADD rating with a revised target price of Rs  1,685," Choice Broking said.