Prabhudas Lilladher's research report on HCL Technologies
The operating performance was broadly in line with our estimates. The FY26 revenue outlook (2-5% YoY CC) assumes 100bps of inorganic element (HPE Assets). The organic guidance translates to a weak CQGR of (-0.1% to +0.9%), which assumes the execution delays and further deterioration of demand at the lower band of the guidance. We believe the company is highly exposed to tariff sensitive verticals (Manufacturing, Retail, Healthcare), while the ER&D outlook is posing incremental risk to the organic business. Although the management indicated of having recorded 75%+ YoY growth in ER&D bookings in FY25, we believe the discretionary nature of these deals is sensitive to the current environment, which might cause execution delays as we progress through FY26. The constructive recovery in P&P business was notable (+3.5% YoY CC) in FY25 after 2.3% and 1.8% YoY CC growth in FY24/FY23. We expect the P&P business to see further recovery in FY26 through growing opportunities in the emerging markets. As a result, we expect the high-margin P&P business to contribute further in FY26 margins. We are baking in revenue growth of 3.0% and 5.5% YoY CC, while expecting an improvement in margins of 10/30bps YoY in FY26E/FY27E.
Outlook
The stock is currently trading at 22x/20x FY26E/FY27E, which is at marginal discount/premium (1-year forward) to its comparable peers. Considering direct exposure to tariff-sensitive verticals and challenging ER&D outlook, we downgrade to HOLD (earlier ACCUMUALTE).
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