HCL Tech shares see price cuts, near-term pressure likely on weak FY25 guidance: Analysts

HCL Technologies Ltd (HCL Tech) reported a healthy set of March quarter results but its FY25 revenue guidance came a bit lower than expected at 3-5 per cent in
constant currency (CC) terms, even as the 18-19 per cent EBIT margin guidance has been maintained. Analysts were expecting the revenue guidance in the 4-7 per cent range. 

A near term pressure on the HCL Tech stock is likely, said Motilal Oswal Securities. But the brokerage expects the stock to outperform its peers and reiterate it as top idea for FY25. 

"We cut our FY25-26 earnings estimates by 6-8 per cent to factor in a weaker-than-expected guidance. Reiterate BUY with a TP of Rs 1,700, premised on 23x FY26E EPS," Motilal Oswal said.

Nuvama said the lower FY25 guidance was due to higher offshoring at one of the clients in Q1, which will lead to a revenue decline of 2 per cent in Q1FY25. Additionally, divestment of the State Street business will show up in the numbers from Q2FY25, it noted.

"HCL Tech's sharp re-rating has been driven by its higher growth than peers and rectification of its capital allocation policy—fundamentals that will sustain in FY25 as well (though growth might not be highest in FY25). We remain positive on HCLT," Nuvama said while suggesting a target of Rs 1700 (Rs 1,770 earlier) on the stock.

At midpoint, said Nirmal Bang, the guidance has come out to be slower than the 5 per cent growth in FY24. HCL Technologies said it is likely that within its peer set, FY25 may represent the third year of leading revenue growth despite the slowdown. Nirmal Bang has upgraded the stock to 'accumulate' but suggested a lower target  price of Rs 1,460 for HCL Tech, which is based on a target PE multiple of 20.1 times, a 15 per cent discount to TCS. 

"The miss on revenue guidance has led to 4 per cent/ 3 per cent cut in FY25/ 26 EPS, however, we remain positive on the company’s medium-term outlook. We reiterate BUY rating and cut our target price to Rs 1,600 (from Rs 1,650) in line with the EPS cut," said Antique Stock Broking.