HCLTech Q3 Results Review -Commentary Retains Near Term Caution; 'Reduce' Says Dolat Capital; Here's Why

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Dolat Capital Report

HCLTech Ltd. reported revenue of $3,553 milion, up 3.8% in constant currency (our estimate: 3.7%) led by a seasonally strong Software biz. The IT/ER&D/Software biz grew by 1.5%/5.4%/18.7% QoQ.

Operating profit margin expanded by 90 bps to 19.5% mainly due strong OPM from Software biz and gains from Project Ascend (100 bps), despite impact of furloughs (40 bps) and wage hikes (80 bps).

The company raised its CC growth guidance to 4.5%-5% (previous: 3.5%- 5%) factoring more 50 bps from HPE assets’ inorganic contributions. Overall commentary, however, remains cautiously optimistic.

We slightly inch up our FY25/26/FY27E EPS estimates by 2.5%/2.6%/2.3 noting OPM improvement. However, as valuations are nearing peak, we revise our rating to ‘Reduce’ with a target price of Rs 2,050, at 27 times of FY27E earnings.

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