Buy HCL Technologies Ltd For Target Rs.1,459 By Geojit Financial Services Ltd
HCL Technologies Ltd (HCL Tech) is a software development, business process outsourcing and IT infrastructure services company operating in 60 countries, with a client base that includes Fortune 500 and Global 2000 firms.
* In Q1FY27, HCL Tech’s consolidated revenue rose 13.9% YoY to Rs. 34,579cr, driven by broad-based growth across business verticals.
* IT and business services revenue increased 16.0% YoY to Rs. 26,049cr, led by continued traction in the core services portfolio and growth in large client accounts.
* Engineering and R&D services revenue rose 10.0% YoY, while software revenue grew a modest 4.4% YoY.
* EBITDA grew 13.8% YoY to Rs. 6,870cr, led by healthy revenue growth, partly offset by higher employee expenses (+11.9% YoY). Margin was broadly stable at 19.9%.
* Reported PAT grew 20.3% YoY to Rs. 4,626cr on strong operating performance and margin stability.
Outlook & Valuation
HCL Tech delivered a healthy performance during the quarter, led by resilient execution amid a mixed demand environment and strength in large-deal wins. Robust bookings, broad-based deal momentum and expansion in large-account relationships provide confidence in medium-term growth visibility despite caution in discretionary spending. Operational performance remained disciplined, with margin resilience backed by productivity initiatives and a focus on profitable growth. The company is also investing in AI capabilities, differentiated platforms, talent development and strategic ecosystem partnerships, strengthening its positioning in enterprise AI and digital transformation. While near-term growth may be uneven amid optimisation in traditional services and weakness in select verticals, a healthy pipeline and sustained deal momentum should support medium-term growth. Hence, we upgrade our rating to BUY on the stock, based on 19x FY28E Adj. EPS, with a revised target price of Rs. 1,459.
Key concall highlights
* HCL Tech announced entry into the AI data centre business with an initial investment of up to Rs. 3,500cr, targeting a long-term scaleup to 50 megawatt (MW) through a full-stack AI infrastructure model.
* The company reported a net new total contract value (TCV) of $2.4bn, its highest-ever first-quarter bookings. The deal wins were broadbased across service lines, verticals and geographies and notably exclude the large deal signed in early July.
* HCL Tech strengthened its AI ecosystem through a $150mn investment in Sarvam, a dedicated Gemini Enterprise business unit with Google Cloud, AI Innovation Zones with Google Cloud and Intel and AWS AI Services Competency .
* It continued to expand its large-account base, adding one client in the $100mn+ revenue category, six in the $50mn+ category, 11 in the $20mn+ category and 31 in the $10mn+ category on a YoY basis.
* The company expanded its industry AI portfolio to 23 solutions, adding AI for store operations, order-to-cash platform and intelligent validation and quality platform during the quarter.
* HCL Tech maintained its FY27 organic revenue growth guidance at 1-4% and margin guidance at 17.5-18.5%, highlighting a divergence between strong growth in AI-native and AI-amplified services and continued optimisation of traditional commoditised services.
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