HCLTech Valuations Stretched Despite Strong Growth, Analysts Say After Investors Day

HCL Technologies Ltd.'s valuations are stretched despite being one of India's fastest-growing IT companies, according to brokerages after attending the company's investors day, where the management laid out their next five-year plan for high growth.

By 2030, the management expects the IT services market to be worth $2 trillion. Here are the key takeaways from the investor day and brokerage views.

HCL Technologies Investor Day: Key Highlights 

Key takeaways:

• Management laid down its next five-year plan for high growth.

• Claims for a strong breadth of services, which is better than peers.

• Plans to increase the quarterly net new deal win run-rate to $2.3-2.5 billion, compared to around $2 billion currently.

• Top opportunities include the data and AI market, enterprise business applications, ER&D, business process services, and the cybersecurity market.

• It highlighted opportunities in generative AI, hardware, and chip design capabilities.

• The demand environment is better than a few months ago, with a discretionary revival in the banking and financial services space.

 Market Size Expectations:

• Total addressable market for IT services: $2 trillion by 2030

• Data and AI: To grow at 19.1% CAGR by 2029

• Enterprise business applications: To grow at a 14.3% CAGR

 Areas For Improvement:

• To improve Market participation: It remains suboptimal, with only 1/3rd of G2000 companies being properly catered to. Another 1/3 are opportunistic, and the balance is not being catered to. It aims to broaden its reach in serving these clients.

• Operating Margins: Earnings before interest and taxes remained stable versus aspirational expansion. This was primarily due to high employee costs, which continued to rise despite efforts to control them. The management mentioned focussing on fresher hiring and deployment efficiency to gradually expand EBIT margin. 

HCL Software Business:

• will remain a long-term strategic priority

• Is a high margin business with ~24.7% EBIT margin in fiscal 2024

• It focusses on AI & Automation, Data & Analytics, Business Applications, Security & Compliance.

• It won a large deal with SBI for a customer data platform in the first quarter ended June 2025.

Brokerage Views

CLSA

• Maintains a 'hold' rating with a target price of Rs 1,556, implying a downside of 9.2% from previous close

• Has stretched valuation despite being one of the fastest-growing IT companies

• Management is very confident of achieving a double-digit revenue CAGR over the next five years.

• Near term tailwinds include green shoots in demand, discretionary revival in BFSI, manufacturing activity to improve due to move towards S4/HANA, and cost optimisation deals to be strong.

• Expect IT services and ER&D to grow in high single digits in fiscal 2026 and 2027 due to revival in discretionary demand.

Goldman Sachs:

• Maintain a 'neutral' rating with a target price of Rs 1,420, implying a downside of 17% from the previous close.

• 12 month price to earnings ratio is 20 times.

• Growth is already reflected in valuations.

• Currently trading at a meaningful premium to its own history

• Key risks: weaker revival in tech spends, foreign currency impact, uncertain impact from generative AI

Jefferies:

• Maintain the 'hold' rating with a target price of Rs 1,630, implying a downside of 5% from the previous close.

• Provided clarity on medium-term strategic priorities

• However, demand is still led by cost-takeout deals.

• Over fiscal 2024-2027, expect HCLTech to deliver 6% constant currency revenue CAGR and 9% earnings CAGR.

Shares of the company was trading 1.45% higher at Rs 1,744.40 apiece, compared with a 0.21% gains in the benchmark Nifty 50.