HCL Technologies Ltd. share price target

HCLT has reported weaker-than-expected revenue growth of 1% QoQ CC (vs I-SEC estimate of 1.9%) in Q2FY24 due to weakness in products and platform business (-4% QoQ CC). Revenue growth revived in services business with 0.9% QoQ growth in IT services and 5% (1.6% organic) QoQ CC growth in ER&D vs a decline in Q1FY24 (exhibit 4).

Global uncertainties leading to delayed spending decisions pose a challenging environment to HCL Tech and will impact its performance in the near term. Moreover, supply-side constraints will take some more time to ease off. Hence, we recommend a HOLD rating on the stock.

HCL Tech (HCLT) has reported Q1FY24 revenue at US$3,200mn, down -1.1% QoQ in US$ and down 1.3% QoQ in CC terms below our/consensus estimate of 0%/0.8% QoQ CC growth. Softness in revenue growth was led by decline in ER&D (16% of revenue) by 5.2% QoQ CC, in IT and business services (75% of revenue) by 0.1% QoQ CC and in software products and platforms by 3.1% QoQ CC.

HCLT disappointed with overall miss. The disappointment was on account of a sharp ramp-down in the technology and telecom segments, where revenues declined significantly. Despite a weak Q1, HCLT has retained its FY24 revenue and EBITM guidance of 6-8% and 18-19%. This implies CQGR of 3.1-4.4% over Q2-Q4 — a steep ask, given the current environment.

Global uncertainties leading to delayed spending decisions pose a challenging environment to HCL Tech and will impact its performance in the near term. Moreover, supply-side constraints will take some more time to ease off. Hence, we recommend a HOLD rating on the stock.