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Target: ₹990
CMP: ₹1,109.20
HCL Technologies’ (HCLT IN) Q1 CC growth was (1.3) per cent q-o-q, way below our estimates of 1.1 per cent q-o-q and median street estimate of 0.8 per cent q-o-q. The negative surprise from Services business – (1.0) per cent q-o-q CC growth in a seasonally weak quarter – affected HCLT.
ER&D services were the most hit (-5.2 per cent q-o-q in CC), by a sharp decline in Telecom/Technology verticals, down 14.4 per cent/7.8 per cent q-o-q CC, respectively. Client ramp-downs, delayed decision making, discretionary spend cut and declining deal wins were the key reasons.
The management retained its revenue growth outlook of 6-8 per cent. This accounts for an ask rate CQGR of 2.9-4 per cent, which we believe is unlikely in tough macro. EBIT margin guidance of 18-19 per cent may be achieved given HCLT’s action to defend cost (no bonus to seniors and deferring bonus for medium to lower-level employees by a quarter).
We factor in the disappointing performance in Q1 and roll forward to Jun-25 ending EPS. We cut FY24/25 EPS 7 per cent/5 per cent. With unchanged stance, we downgrade to Sell from Reduce and pare TP to ₹990 (from ₹1,020).
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