HCL Tech shares: Should you buy stock post FY25 guidance upgrade?

HCL Technologies Ltd reported a strong set of Q2 results, with all round beat on dollar revenue, margin and net new deal wins. Analysts said HCL Tech’s focus on leveraging AI, expanding its software portfolio, and capitalising on emerging trends in ER&D services is expected to drive long-term sustainable growth across its key business segments. 

Nuvama said HCL Tech has been, by far, the best-performing stock in the large-cap IT space in the past 12 months. Its sharp re-rating has been driven by higher growth than peers and rectification of its capital allocation policy—fundamentals that shall sustain in FY25 too, the brokerage said.

HCL Tech is currently trading at 26 times FY26 EPS, which is at par with Infosys and TCS  against a historical discount of 15–20 per cent. Nuvama suggested a revised target price of Rs 2,125 from Rs 2,020 earlier.

HCL Tech revised its revenue growth guidance upward to 3.5–5 per cent YoY in CC terms from 3-5 per cent earlier, supported by broad-based growth. The EBIT margin guidance was retained at 18–19 per cent, underpinned by operational efficiencies, especially within the software business, Nirmal Bang said.

Net new total contract value (TCV) of deal wins continue to remain healthy at $2.2 billion for Q2, it noted as it upgraded the stock to 'Buy' with a target price of Rs 2,172. 

"Overall, we expect dollar revenue growth of 5.6-10.8 per cent in FY25/26F with EBIT margins of 18.3-19 per cent. Strong growth in the products business can be a medium-term demand tailwind, in our view," Nomura India said while suggesting a target of Rs 2,000.

Antique Stock Broking said the raising of FY25 revenue guidance by 50 bps translates into a compounded quarterly growth rate of 0.7-2.6 per cent. It noted that all of the company’s verticals experienced quarterly growth, with the exception of financial services, which was affected by the planned divestment during the quarter.

"We maintain BUY recommendation on the stock and increase our target price to Rs 2,000 from Rs 1,875 as we roll over our valuation multiple to FY27
(from 1HFY27) and maintain the forward PE multiple at 25 times, which is in line with our target multiple for Infosys," it said.

Meanwhile, ICICI Securities said an upward revision of 50 basis points in revenue guidance at the lower end is not in line with beat in Q2, underscoring cautious outlook. It retained Reduce on the stock on full valuations as the stock has run up 47 per cent in the past one year.