HCLTech Ltd.'s share price will be on focus on Tuesday as multiple brokerages have issued diverging ratings following the second-quarter financial results. Those include HSBC, Nomura, Citi, Morgan Stanley and Nuvama.
India's third-largest IT company by market capitalisation, reported a sequential revenue increase of 2.9% for the second quarter ended September. The company’s revenue totalled Rs 28,862 crore, aligning with analysts' estimates of Rs 28,637.2 crore, as tracked by Bloomberg.
Net profit declined 1% to Rs 4,237 crore, compared to the estimated 4,061 crore.
Bull Case
Nomura has maintained a 'buy' rating on HCLTech, setting a target price of Rs 2,000, which reflects a potential upside of 7.2% from the previous close. The company recently upgraded its guidance, indicating that it expects a compound quarterly growth rate of 0-2% over the remaining two quarters, a forecast deemed conservative given the strong seasonality typically seen in the product business during the December quarter.
Nomura also suggests that discretionary demand is unlikely to decline further, based on insights from its proprietary G2000 database. Additionally, a potential interest rate cut cycle and a thawing in decision-making by U.S. corporates following the presidential elections could further boost demand. Currently, the stock is trading at 23 times its fiscal 2027 earnings per share estimate.
Similarly, Nuvama has also rated HCLTech as a 'buy', with a target price of Rs 2,125, indicating a potential upside of 8.8%. The company reported strong, broad-based growth across its verticals in the second quarter and has maintained flat revenue in the BFSI sector despite a recent divestment, prompting an upward revision of its revenue guidance's lower end.
HCLTech has emerged as the best-performing stock in the large-cap IT space, driven by a sharp re-rating attributable to its higher growth compared to peers, the brokerage said. The rectification of its capital allocation policy and solid fundamentals are expected to sustain its performance in the current year.
The shares are trading at 26 times the fiscal 2026 price-to-earnings ratio, aligning with industry leaders Infosys Ltd. and Tata Consultancy Services Ltd., contrasting with their historical discount of 15%–20%.
Limited Potential
HSBC has maintained a 'hold' rating on HCLTech stock, setting a target price of Rs 1,700, which suggests a potential downside of 8.8% from the previous close. The IT major reported a strong quarter, surpassing expectations for both topline and margins, while deal wins remained stable in the second quarter.
However, with valuations now aligning with those of TCS, there is limited potential for near-term re-rating. Additionally, HCLTech's margins are lower than TCS, but its smaller base may enable slightly better growth compared to its larger rival, HSBC said. Notably, the implied guidance for the second half of the year does not indicate any expected acceleration in growth.
Citi has maintained a 'neutral' rating on HCLTech stock, with a target price of Rs 1,815, indicating a potential downside of 2.7%. Despite the challenging environment, the company continues to perform relatively well, having delivered a healthy second quarter following a weaker first quarter, it said.
However, Citi perceives limited absolute upside potential after a significant 27% return so far this year. The firm anticipates a modest and gradual recovery in the IT services sector but notes that forward-looking indicators for HCLTech do not appear strong. Additionally, Citi expects to see cost pressures in the coming quarters as utilisation rates peak.
Morgan Stanley has maintained an 'equal-weight' rating on HCLTech stock, setting a target price of Rs 1,970, which indicates a potential upside of 5.6%. It said margin upside will be limited unless there is an improvement in the medium-term outlook for software revenue growth.
Although there has been no significant uptick in order intake, the firm sees potential for positive surprises in growth, as the conversion of deals to revenue improves with an increase in short-cycle deals. Consistent industry-leading revenue growth should help maintain premium valuations, but improving order bookings will be crucial for sustaining growth momentum in the next fiscal year, Morgan Stanley said.
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