Brokerages remained on the sidelines after industry major HCLTech's Q3 earnings, though in-line with expectations, failed to deliver upside triggers. While the management commentary over deal wins remained upbeat, the marginal revision in revenue growth guidance hinted at a weaker Q4 for HCLTech, leaving brokerages disappointed.
Shares of HCLTech also took a hit in opening trade on January 14, diving over 8 percent. At 09.22 am, shares of HCLTech were trading at Rs 1,840 on the NSE.
HCLTech has revised its revenue growth guidance for the full fiscal year 2025, increasing the lower end by 100 basis points in constant currency (CC) terms. The revision, however, was capped by a planned reduction in a major telecom deal during Q4 and delays in ramping up certain discretionary deals, according to CEO C Vijayakumar. Following this revision, HCLTech's revenue growth guidance now stands at 4.5-5 percent, up from the 3.5-5 percent range announced in the previous quarter.
Brokerage firm CLSA, stated that despite a demand improvement tone similar to TCS, the lack of change in the company's mid-point of its organic growth guidance left them disappointed. Accordingly, CLSA chose to retain its 'hold' rating on HCLTech with a price target of Rs 1,882.
Meanwhile, Jefferies also highlighted that the revised growth guidance pointed towards a weak exit for HCLTech in the Q4 despite upbeat commentary on TCV to revenue conversion and discretionary spends. Factoring that in, Jefferies also slashed its earnings-per-stock estimates for HCL by 1-2 percent. The firm also has a 'hold' call on HCLTech with a price target of Rs 2,060.
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Echoing a similar sentiment, Motilal Oswal Financial Services stated that HCLTech’s Q3 numbers and as well as its Q4 guidance were underwhelming. "The implied organic growth rate for information technology and business services (IT&BS) in 4Q is approximately 0.6 percent in CC at the upper end of the guidance," MOFSL noted.
While the management attributed the subdued Q4 to planned contractual reduction, MOFSL feels the slower ramp-up of discretionary deals in 4Q is a dampener, especially in an environment where short-cycle deals are gaining momentum. Despite that, MOFSL retained its 'buy' call on the stock with a price target of Rs 2,400.
On the other hand, Nuvama Institutional Equities went ahead and downgraded its rating for HCLTech to 'hold', citing full valuations. Even though Nuvama continues to like HCLTech’s solid growth, high free cash flow generation and capital allocation, it believes the stock's current valuations and the fact that discretionary-focused peers such as Infosys are available at a discount, limits its upside potential.
Also Read | HCLTech raises FY25 revenue guidance, planned contractual reductions in Q4 caps revision
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