HCL Tech stock drops 9% post-Q3 results: Should you buy, sell, or hold

Photo: Instagram/@hcltech

On January 14, HCL Technologies' shares dropped sharply by 9.23%, reaching an intraday low of ₹1,805.85. This significant decline came after the company announced a 6% increase in consolidated net profit for the quarter ending December 2024, amounting to ₹4,591 crore. This was up from ₹4,350 crore in the same quarter of the previous year.

The company reported a 5% rise in revenue from operations, which stood at ₹29,890 crore, compared to ₹28,446 crore in the previous year. Operating earnings before interest and tax (EBIT) for the quarter came in at ₹5,821 crore, reflecting a 4% year-on-year increase and a 9% quarter-on-quarter rise. In constant currency, HCL Tech posted a 4% year-on-year revenue growth, with revenue in US dollars increasing by 3.5% year-on-year to $3.53 billion.

According to HCL Tech, the growth during the quarter was driven by solid performance across various business lines. CEO and MD C Vijayakumar highlighted the importance of digital and AI services in achieving these results, stating that clients across industries trust HCL Tech’s offerings in these areas. He emphasized the company’s focus on preparing for a transformative future, where AI will play a key role in empowering businesses and employees alike.

The company’s new deal bookings reached $2.1 billion during the quarter, reflecting healthy momentum in both its services and software segments. Chairperson Roshni Nadar remarked that HCL Tech is well-positioned to take advantage of opportunities arising from AI-driven transformations. She also underlined the company’s commitment to governance and sustainability while delivering strong performance.

Looking ahead, HCL Tech has projected revenue growth for the current fiscal year to be between 4.5% and 5% in constant currency terms. The company expects EBIT margins to range between 18% and 19%. It also anticipates services revenue growth for FY25 to align with these figures. During the quarter, HCL Tech added 2,134 employees, with its last twelve months’ attrition rate slightly increasing to 13.2%.

Analysts have offered mixed opinions on the company’s performance and outlook. Morgan Stanley maintained an “Equal-Weight” rating with a target price of ₹1,970. They noted that while the services segment met expectations, the software business underperformed, leading to lower-than-expected revenue guidance. However, the company’s EBIT margin guidance of 18-19% for FY25 was positive.

Nomura gave HCL Tech a “Buy” rating with a target price of ₹2,000. They described the performance as a mix of positives and challenges, with improved revenue growth guidance for FY25 and strong deal wins. They also highlighted that the growing adoption of generative AI could drive future demand.

Nuvama downgraded the stock to “Hold” with a revised target price of ₹2,150, slightly higher than its earlier target of ₹2,125. While they praised HCL Tech’s solid growth in the retail and telecom sectors, strong free cash flow, and effective capital allocation, they expressed concerns about the high valuation, which currently stands at 28.5 times the estimated price-to-earnings ratio for FY26.

Despite reporting steady profit and revenue growth, HCL Tech’s stock faced selling pressure due to mixed results and cautious guidance for the future. While the company’s long-term potential in AI and digital transformation remains promising, near-term challenges and valuation concerns have prompted a more cautious outlook from some analysts. Investors are advised to carefully evaluate the risks and opportunities before making investment decisions.

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