HCLTech Q1 Results Review - In Low Gear: HDFC Securities

HDFC Securities Institutional Equities

Along expected lines, HCLTech Ltd. delivered a soft quarter (revenue/margin decline) with a growth uptick expected in Q3 FY25E. The deal transition impact from onshore to offshore and State Street exit is impacting FY25 growth by ~1.5% while Verizon’s impact is balancing out, resulting in a moderating growth trend in FY25E.

Guidance was maintained at 3-5% constant currency growth for FY25E which implies 0.9% to 2.3% compound quarter growth rate over Q2-Q4 FY25 with ~0.8% negative impact in Q2 on account of State Street exit.

In addition to the offshoring impact of a large BFSI program, weakness exacerbated in-

1. the manufacturing vertical with impact in the automotive sub-segment including the recent acquisition of ASAP, seasonal productivity benefits and lower asset based revenue (hardware/software cost) and

2. Lifesciences and healthcare vertical with project-specific weakness in MedTech client.

HCLTech’s strong credentials in the ISV ecosystem, dominance in sub-segments (infra, ERS), and improving operating performance over the medium term keep us constructive.

Mid-single-digit growth in earnings for FY25E may limit the upside. Maintain Add with target price of Rs 1,575, at 22 times June-26E earnings per share.

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