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Shares of HCLTech tumbled over 9% on January 14, following the release of its Q3 results; What should investors do now?
HCL Tech
Shares of HCLTech, India’s third-largest IT company, tumbled over 9% on January 14, following the release of its Q3 results. While the company’s earnings were largely in line with expectations, the slight upward revision in guidance raised concerns about a weaker Q4 exit, dampening market sentiment.
At 9:36 am, HCLTech shares were trading at Rs 1,804.65 on the NSE.
HCLTech updated its revenue growth guidance for FY25, raising the lower end by 100 basis points in constant currency (CC) terms. CEO C Vijayakumar noted that the revision was influenced by a planned reduction in a significant telecom deal in Q4 and delays in ramping up certain discretionary projects. The updated guidance now stands at 4.5-5%, compared to the previous range of 3.5-5%.
In Q3FY25, HCLTech reported a 3.6% quarter-on-quarter (QoQ) increase in revenue to Rs 29,890 crore from Rs 28,862 crore. Revenue in USD terms grew by 2.6%, reaching $3,533 million, up from $3,445 million sequentially.
The company also narrowed its FY25 constant currency revenue growth guidance for both overall and services to 4.5%-5%, from the previous 3.5%-5%, while maintaining its EBIT margin guidance of 18%-19%.
At the operating level, EBIT rose by 8.6% to Rs 5,821 crore from Rs 5,362 crore, while EBIT margin improved by 90 basis points to 19.6% from 18.7% QoQ.
HCLTech also declared an interim dividend of Rs 12 per share and a special dividend of Rs 6 per share.
Should You Buy, Sell, or Hold?
“HCL Technologies Q3FY25 operating performance was slightly below our estimate. The revenue growth of 3.8% QoQ CC was marginally lower than our forecast of 4.2%. Despite the lack of mega deals, the deal pipeline is at an all-time high. While discretionary spending has improved, planned deal ramp-downs may result in softness in Q4. We are trimming our FY25-27E EPS estimates by 0.3%-1.7% due to the Q3 performance,” said Dipeshkumar Mehta, Senior Research Analyst at Emkay Global Financial Services Ltd.
After an 8% rise in HCLTech’s stock price over the past three months and a 28% increase over the past six months, Mehta expects the stock to consolidate in the short term due to near-term challenges.
Emkay Global has retained its ‘Add’ rating on HCLTech shares, with a target price of Rs 2,000 apiece, based on a 26x multiple of Dec-26E EPS.
Brokerage firm Nuvama Institutional Equities remains positive on HCLTech, citing its superior growth compared to peers, strong free cash flow generation, and effective capital allocation. However, at 28.5x FY26E PE, the stock’s valuation appears full.
“We are adjusting our FY25/26 estimates down by 0.6%/-3% for slightly lower growth. We are also rolling forward to 28x FY27E PE and updating our USDINR assumption to 86.5,” said Nuvama Equities.
As a result, Nuvama downgraded HCLTech shares to ‘Hold’ and slightly raised the target price to Rs 2,150 per share from Rs 2,125.
Analysts see today’s dip in HCLTech shares as a potential buying opportunity.
“HCLTech’s stock has strong support at Rs 1,710 per share. This dip should be seen as a buying opportunity. The stock may rebound to Rs 1,800 in the near term. Shareholders should maintain a stop loss at Rs 1,710 and consider accumulating more shares,” said Sumeet Bagadia, Executive Director at Choice Broking.
Bagadia added that after a potential trend reversal on Dalal Street, HCLTech stock could see strong upside, potentially reaching Rs 1,900 and Rs 1,950 once it breaks above Rs 1,800 on a closing basis.
“Fresh investors can also adopt a buy-on-dips strategy with a strict stop loss at Rs 1,710, targeting Rs 1,900 and Rs 1,950 in the short term,” he concluded.
