HCLTech Q4 Review: Analysts Cut Target Price On Disappointing FY25 Guidance

HCL Technologies Ltd. guided for 3–5% revenue guidance in financial year 2025, lower than 5% in the preceding fiscal, due to an expected slowdown in the first quarter. It prompted JP Morgan, Goldman Sachs and Kotak Securities to cut its target price on the stock due to concerns that the near-term demand would likely stay weak. The reductions led to its shares plunging to its lowest in over four months.

HCLTech is expecting a weak first half due to a 2% sequential decline in the first quarter of the current fiscal as productivity passback for large clients and offshoring of a large contract, Nirmal Bang said in a note.

Disengagement from the State Street joint venture and large deal contours are also likely to add to the fall in the IT-firm's growth in the first quarter, according to JP Morgan.

HCLTech is expected to be the only company to post growth similar to the previous fiscal in the sector. Peers are likely to report improvement, Goldman Sachs said.

• Revenue up 0.18% at Rs 28,499 crore vs Rs 28,446 crore (Bloomberg estimate: Rs 4,123 crore).

• EBIT down 10.98% at Rs 5,024 crore vs Rs 5644 crore (Bloomberg estimate: Rs 5,266 crore).

• Margin narrows to 17.62% vs 19.84% (Bloomberg estimate: 18%).

• Net profit down 8.18% at Rs 3,995 crore vs Rs 4,351 crore (Bloomberg estimate: Rs 4,123 crore).

• Board approves a dividend of Rs 18 per share.

• JP Morgan maintains a 'neutral' rating on HCLTech and reduces target price to Rs 1,470 apiece from Rs 1,480, implying a potential upside of 5%.

• Fiscal 2025 guidance is disappointing.

• EBIT guidance pushes out a medium-term target of 19–20%.

• HCLTech called out a 2% QoQ decline in the first quarter from specific large-deal contours, followed by State Street ramp-down in 2Q.

• This makes the second half more heavy than usual.

• Although the company benefits from a non-discretionary heavy portfolio, it is unlikely to enjoy tailwinds from the BFS recovery.

• Goldman Sachs maintains a 'neutral' rating and cuts the target price to Rs 1,370 apiece from Rs 1,440, implying a potential downside of 7%.

• Fiscal 2025 below expectations.

• HCLTech is the only company where Goldman Sachs expects fiscal 2025 to be similar to the last fiscal. The rest of the brokerages see improvement.

• Overall discretionary environment remains weak.

• HCLTech was the only company in Goldman Sachs' coverage to add headcount.

• HCLTech's valuation is at a premium to its own history.

• Key takeaway is that the near-term demand continues to be weak.

• Kotak Securities maintains an 'add' rating and cuts the target price to Rs 1,600 apiece from Rs 1,730, implying a potential upside of 8%.

• The guidance missed the mark due to muted deal wins.

• ⁠The deal pipeline is healthy with mega deal wins.

• Incorporates weaker-than-expected discretionary spending environment.

• Strong outperformance versus peers will moderate returns hereon.

• Nirmal Bang upgraded the stock to 'accumulate' with a target price of Rs 1,460 apiece, implying a potential downside of 1%.

• Fiscal 2025 revenue guidance has come in a bit lower than expected.

• Fiscal 2025 may represent the third year in succession of peer-set leading revenue growth despite the slowdown.

• The discount is due to the weakening of margins in the services business.

• The upgrade is largely due to the stock price correction of 12% from mid-March.

On the NSE, HCLTech's stock fell as much as 6.23% during the day to Rs 1,382.10 apiece, the level since Dec. 14. It was trading 5.89% lower at Rs 1,387.10 per share, compared to a 0.45% advance in the benchmark Nifty 50 as of 10:49 a.m.

The share price has risen 29.93% in the last 12 months and 5.35% on a year-to-date basis. The total traded volume so far in the day stood at 1.68 times its 30-day average. The relative strength index was at 26.59.

Twenty-one out of the 43 analysts tracking the company have a 'buy' rating on the stock, 15 recommend 'hold' and seven suggest 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 9.9%.