HCL Technologies: ICICI Securities Reiterates Buy Recommendation with Price Target of Rs 1370
HCL Technologies Faces Revenue Headwinds Amidst Challenging Macro Environment
HCL Technologies' (HCLT) recent research report from ICICI Securities highlights concerns over the company's revenue guidance for the fiscal year 2026. According to the report, HCLT's revenue growth is expected to be 2.5% year-over-year (YoY) compound annual growth rate (CC) at the midpoint, which is lower than the expected 3.9% YoY CC growth for FY26.
The report identifies several factors contributing to the weak revenue guidance, including discretionary spend cuts by two telecom clients, budget cuts by one manufacturing and one retail client, AI-led deflation, a weak exit run-rate, and challenging macroeconomic conditions. However, the report notes that the implied compound annual growth rate (CAGR) for FY27, as per the midpoint of the guidance, is 1.3% compared to 0.6% for FY26.
Management has acknowledged a 3-5% deflation in traditional services, which account for 40% of the industry's revenue. This deflation is offset by healthy growth in the rest of the portfolio, leading to low-mid single-digit growth for the industry in FY27. The risk of AI-led deflation intensifying further persists.
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In response to the revised revenue estimates, ICICI Securities has cut earnings per share (EPS) by 4% for FY26 and 3% for FY27, partially offset by increased USD/INR exchange rate assumptions.
Recommendation and Outlook
ICICI Securities maintains a HOLD rating for HCL Technologies with a target price (TP) of INR 1,370. This recommendation is based on an estimated price-to-earnings (P/E) ratio of 18x for the services business and 16x for the product business in FY28.
Comparison of Growth Rates
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| Fiscal Year | HCLT Revenue Growth (YoY CC) |
|---|---|
| FY26 | 3.9% |
| FY26 (HCLT's guidance) | 2.5% |
| FY27 (implied CAGR) | 1.3% |
| FY27 (industry growth) | Low-mid single-digit growth |
Note: The growth rates are based on the midpoint of the guidance provided by HCLT.
Investor Takeaway
Maintain HOLD with a price target of Rs 1370.
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