HCL Technologies Ltd (HCL Tech) has garnered rating upgrades from multiple brokerages following its second-quarter earnings report. Despite these positive reassessments, the collective 12-month target price for HCL Tech shares indicates a restricted potential for significant growth.
Analyst Targets Reflect Mixed Outlook
A compilation of 26 analyst targets by Business Today, sourced from Bloomberg, sets the consensus 12-month target price for HCL Tech at Rs 1,277.55. Individual analyst projections varied widely, with Ravi Menon of Axis Capital providing the most optimistic target at Rs 1,530. Conversely, Surendra Goyal of Citi set the lowest target at Rs 1,050, highlighting the diverse expert opinions on the stock's future trajectory.
Q2 Performance Highlights
HCL Tech's second-quarter financial performance revealed several key metrics:
- Revenue: Dollar revenue reached $3,724 million, marking a 2.3 percent sequential increase, though it fell slightly below the consensus estimate of 2.7 percent. This figure included a 97 basis points inorganic contribution.
- Deal Wins: Net new deal wins were strong, totaling $3.3 billion, a 27 percent year-over-year increase.
- EBIT Margin: The company's EBIT margin improved to 18.2 percent, up 130 basis points quarter-over-quarter, surpassing the consensus expectation of 17.6 percent.
- Dividend: HCL Tech also declared a dividend of Rs 12 per share.
Revised Guidance and AI Contribution
The company revised its revenue growth guidance for the fiscal year. Services revenue growth is now projected at 3-4 percent year-over-year, up from the previous 1.5-4.5 percent range. Overall company revenue growth is expected to be 2.5-4 percent, compared to the earlier 1-4 percent. These revised figures incorporate an inorganic contribution of 62 basis points for services and 87 basis points for the overall company.
Management clarified that a significant mega deal secured in early July is anticipated to ramp up substantially only by the March quarter of 2027.
Advanced AI revenue demonstrated robust growth, increasing 28.4 percent quarter-over-quarter in constant currency (CC) terms and 78 percent year-over-year CC, reaching $219 million. This represents 5.9 percent of the quarterly revenue, with an annualized run rate of $876 million. Importantly, advanced AI services are expected to yield margins 7–10 percentage points higher than traditional services, contributing 32 basis points to sequential EBIT margin expansion. In contrast, non-AI revenue saw a 1 percent year-over-year decline.
Brokerage Perspectives on HCL Tech
MOFSL Recommends 'BUY'
MOFSL maintains a 'BUY' rating on HCL Tech, setting a target price of Rs 1,450. The brokerage highlighted HCLT's "all-weather portfolio" and its strategic investments in Sarvam and the AI data center business, which are expected to strengthen its long-term AI market position. MOFSL increased its FY28E EPS estimates by 1.9 percent, reiterating HCLT as a preferred pick in the large-cap IT space.
Nirmal Bang Issues 'SELL' Rating
Nirmal Bang reiterated its 'SELL' rating for HCL Tech, with a target price of Rs 1,014. The firm noted that management retained its EBIT margin guidance of 17.5-18.5 percent, suggesting limited improvement in profitability despite strong Q2 results. While acknowledging record H1 bookings and strong Advanced AI growth, Nirmal Bang remains cautious about the sustainability of organic growth and the ability of AI-led opportunities to offset deflationary pressures in traditional services, maintaining an 'underweight' stance on the sector.
Nuvama Institutional Equities Holds 'HOLD'
Nuvama Institutional Equities maintained its 'HOLD' rating with an unchanged target of Rs 1,250. The brokerage observed that while HCL Tech's services business is stable, the software segment is impeding overall growth. Nuvama also pointed to an already high premium over competitors like TCS and Infosys for comparable growth, suggesting an unfavorable risk-reward profile for investors.