HCLTech Shares Downgraded To 'Reduce' By Dolat Capital Post Muted Q1 Results — Check Target Price

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Dolat Capital Report

HCLTech Ltd. reported revenue of $3,548 million, down 0.8% in CC (Consolidated estimate: -1%) due to seasonal weakness in IT services and weaker than exp. Software biz.

The IT/ER&D/Software biz. saw sequential movement of flat % / -0.5%/ -7.1% QoQ. Operating profit margin lowered by 171bps to 16.3%, due to S&M (30bps), supply-demand mismatch (80bps), 1x impact of client bankruptcy (30bps) and lower share of Software biz (20bps).

HCLTech narrowed its revenue band to 3-5% growth (for overall Co. as well as IT Svcs, from 2-5% prev.), noting confidence in driving execution, while OPM band was lowered to 17-18% (from 18-19% prev.), largely due to growth investments, restructuring program and Q1 base.

While raising revenue guidance adds comfort despite Q1 miss, the downward revision in OPM will lead to near-term earnings pressure.

Factoring this, we lower our FY26E/FY27E earnings by 4.4%/3.2% and revise our rating to ‘Reduce’ with a target price of Rs 1,700, at 24x of FY27E earnings.

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