HCLTech's expected increase in revenue per employee could support margins, but wage inflation and investment requirements may offset some of the benefit, according to Citi.
The brokerage said HCLTech expects revenue per employee to increase by about 3%. It said the increase should support margins, although higher wage costs and investment requirements could reduce the benefit.
Citi's comments followed a meeting with HCLTech management. The brokerage said the company continues to focus on improving revenue per employee while pursuing opportunities across artificial intelligence, engineering and other businesses.
Citi also said HCLTech plans to invest about Rs 35 billion in a new data centre facility in India. The company sees data centres as an opportunity as demand from artificial intelligence and other applications increases, according to the brokerage.
The investment is expected to support HCLTech's data centre business, while the company also sees opportunities to serve domestic and global customers, Citi said.
Software business seen recovering
Citi expects HCLTech's software business to recover after being sluggish over the past four quarters. The brokerage expects software revenue to grow at 3%-4% and sees earnings per share growth of about 5% annually through FY29.
Citi retained its Sell rating on HCLTech and a target price of Rs 1,110.
The brokerage said HCLTech trades at a premium to large-cap peers despite its lower expected growth. It said the company's revenue per employee should support margins, but wage inflation and investment requirements could offset some of the benefit.
Citi also said HCLTech remains committed to paying at least 75% of profit as dividends.
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