HCLTech Ltd.'s September quarter results delivered a stronger-than-expected profit and an improvement in operating margins, but brokerages remained cautious about the company's growth outlook, software business and valuation premium.
Kotak Securities, Citi and JPMorgan retained their negative ratings on the stock, even as Kotak and Citi raised their target prices following the quarterly performance.
The key concern for analysts is whether HCLTech can sustain its improved margins and maintain growth momentum in the second half of FY27.
While services revenue and deal bookings offered some support, revised organic revenue growth guidance and anticipated wage-related cost pressures remain important factors for investors to monitor.
Kotak Securities on HCLTech: Reduce, Target Price Raised to Rs 1,220
Kotak Securities maintained its 'Reduce' rating on HCLTech while raising its target price to Rs 1,220 from Rs 1,200.
READ | Q2 Results Highlights: HCLTech Q2 Profit Rises 11%, Declares Second Interim Dividend
The brokerage highlighted the margin surprise in the September quarter but flagged weakness in the products business. Healthy growth in services helped offset the softer performance in products, although Kotak remains cautious about the company's valuation.
Kotak also pointed to HCLTech's revised FY27 organic revenue growth guidance of 1.6%-3.1%, compared with the earlier range of 1%-4%. The updated guidance narrows the outlook and provides a more defined growth range, but the brokerage's cautious rating indicates that it sees limited upside relative to the stock's valuation.
The rebound in deal bookings, supported by mega deals, offers a potential positive for future revenue conversion. However, investors will need to assess how quickly these bookings translate into organic growth and whether services momentum can compensate for weakness in the products business.
Citi on HCLTech: Sell, Target Price Raised to Rs 1,050
Citi maintained its 'Sell' rating on HCLTech but increased its target price to Rs 1,050 from Rs 1,030.
The brokerage described the September quarter as decent, with EBIT margins coming in better than expected. However, the software business disappointed, while the services revenue outlook pointed to slower growth in the second half of FY27.
Citi noted that management remained confident of delivering services growth slightly above the midpoint of its guidance range. Even so, the sustainability of the improved margins remains a key consideration, particularly as the company heads into a period of anticipated cost pressures.
Valuation is another concern for Citi. The brokerage noted that HCLTech trades at a 20%-25% premium to peers Tata Consultancy Services and Infosys. This premium could come under pressure if the company fails to sustain its growth and margin performance.
JPMorgan on HCLTech: Underweight, Target Price at Rs 1,080
JPMorgan maintained its 'Underweight' rating on HCLTech with a target price of Rs 1,080.
The brokerage flagged the slight reduction at the midpoint of the company's organic revenue growth guidance as a signal of slowing growth momentum. While the September quarter delivered a margin beat, JPMorgan remains concerned about the outlook for the second half.
The brokerage expects wage hikes to create approximately 140 basis points of margin headwinds in the second half of FY27. These pressures could make it more difficult for HCLTech to sustain its recent improvement in profitability, particularly if revenue growth slows.
READ | HCLTech Raises FY27 Revenue Growth Guidance To 2.5-4%, Retains EBIT Margin Outlook
JPMorgan also warned that slower organic growth at the midpoint of the guidance range could call into question the valuation premium that HCLTech commands over its peers. The brokerage's unchanged target price and Underweight rating reflect its cautious view of the risk-reward equation.
HCLTech Q2 Results: Profit Beats Estimates, Margins Surprise
HCLTech reported a consolidated net profit of Rs 5,132 crore for the July-September quarter, up around 11% sequentially from Rs 4,624 crore in the preceding quarter. The profit figure exceeded the Bloomberg analyst estimate of Rs 4,875 crore.
Revenue rose to Rs 35,620 crore from Rs 34,579 crore in the previous quarter, broadly in line with the analyst estimate of Rs 35,547 crore. Earnings before interest and tax (EBIT) increased 10.9% sequentially to Rs 6,465 crore, compared with Rs 5,831 crore in the June quarter, beating the estimate of Rs 6,243 crore.
Operating performance was another positive surprise, with the EBIT margin expanding to 18.1% from 16.7% in the previous quarter, ahead of the estimated 17.56%.
In constant currency (CC) terms, revenue grew 2.3% sequentially, while services revenue increased 3.4%. Advanced AI revenue rose 28.4% quarter-on-quarter to $219 million, highlighting the company's continued push into artificial intelligence-related services.
Deal activity also improved, with new deal total contract value reaching $3.26 billion during the quarter. HCLTech hired 6,136 freshers, taking its employee count to approximately 2.3 lakh. The reported attrition rate was 12.8%, compared with 12.7% in the preceding quarter.
The company declared a second interim dividend of Rs 12 per share, with October 16, 2026, set as the record date. The dividend is scheduled to be paid by October 26, 2026.
HCLTech Q2: What Should Investors Watch?
The September quarter delivered a clear positive surprise on profit and operating margins, while services growth, AI revenue and improved deal bookings offered further support. However, the brokerage commentary suggests that these positives may not be sufficient to remove concerns about HCLTech's near-term growth trajectory and valuation.
Investors will need to watch the pace of organic revenue growth, the contribution from mega deals, the performance of the software products business and the company's ability to sustain margins amid wage-related cost pressures.
The valuation debate is also likely to remain central. With Kotak Securities retaining Reduce, Citi maintaining Sell and JPMorgan sticking with Underweight, the three brokerages remain cautious despite the quarterly earnings beat. Their target prices range from Rs 1,050 to Rs 1,220, with the differences reflecting their respective assumptions about growth, margins and valuation.
For the stock, the key question is whether HCLTech can convert strong deal bookings and services momentum into sustained organic growth without sacrificing profitability in the second half of FY27.
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