Actions of HCL technologyIndia’s third-largest software services company, on Wednesday plunged as much as 9.58 per cent to the day’s low of Rs 1,303 on the NSE after fourth quarter results failed to meet D-Street’s expectations.
The IT major reported a 4.2 per cent rise in its consolidated net profit for the March quarter at Rs 4,488 crore, compared to Rs 4,307 crore in the same period last year.
Operating revenue for Q4FY26 stood at Rs 33,981 crore, an increase of 12 per cent over Rs 30,246 crore recorded in the corresponding quarter of the previous financial year.
The company expects revenue growth of 1% to 4% year-over-year (y-o-y) in constant currency terms, with services revenue expected to grow between 1.5% and 4.5%. The EBIT margin is projected between 17.5% and 18.5%.
On a sequential basis, revenue increased marginally by 0.3% from Rs 33,872 crore reported in Q3 FY26. However, in constant currency terms, revenue declined by 3.3% quarter-on-quarter and grew by 2.4% year-on-year. Dollar revenue was $3,682 million, down 2.9% sequentially but up 5.3% from last year.
As a result, the company missed its revenue growth targets for FY26. What was expected to be between 4 and 4.5% growth came in at 3.9% for the year.
Services revenue at constant exchange rates fell 0.1% quarter-on-quarter but increased 4.2% year-on-year. Advanced AI revenue was $155 million in the quarter, reflecting a 6.1% sequential increase in constant currency.
What do the experts say?
Nomura maintained its buy call on HCL Tech, although the brokerage reduced its target price from Rs 1,700 to Rs 1,600, implying an upside of around 11 per cent. The company reported that growth guidance for FY27 is weaker than expected, with two customer-specific issues likely to act as headwinds, reducing growth in FY27E by approximately 50 basis points. At the halfway point of its guidance, HCL Tech expects no improvement in discretionary demand, as well as a decrease in activity from these two customers beyond initial expectations.
Nomura now expects the company to deliver revenue growth of 3.8% to 5.6% YoY in dollar terms over FY27 to FY28. Reflecting the gloomier outlook, the brokerage also reduced its EPS estimates for FY27 and FY28 by around 5 to 7%, factoring in the lower growth trajectory.
JPMorgan maintained a ‘neutral’ rating on HCLTech and lowered its price target to Rs 1,370 from Rs 1,419. The brokerage noted that the company’s fourth quarter performance fell short of expectations in terms of revenue, margins and profits. Overall revenues were 2% below estimates, with service revenues down 130 basis points from forecasts.
Management attributed this to reduced discretionary spending at two large U.S. telecom clients and the cancellation of two SAP projects.
HSBC retained a ‘Hold’ rating and reduced its price target to Rs 1,480 from Rs 1,560. The brokerage said the company’s performance in Q4 FY26 was a glaring failure, which also led to weaker than expected growth forecasts for FY27. The failure was mainly due to unexpected budget cuts at major US telecom clients and cancellation of a few SAP projects. HSBC added that profit growth and stock returns are unlikely to reach double-digit rates in the near term.
Motilal Oswal Financial Services maintained a ‘Buy’ rating but reduced its price target to Rs 1,650, implying an upside of around 15%. The brokerage noted that the company’s more moderate guidance for FY27 is largely driven by client-specific challenges and weakness seen in March. This includes disruptions at some customers and a sharp decline in discretionary spending in the telecommunications segment of two large US-based customers.
Geographically, Europe remains weak due to geopolitical uncertainties, while North America is relatively stable outside of these customer-specific issues. Motilal Oswal also pointed out that the weakness in the software sector was partly due to delays in closing deals, influenced by factors such as the US government shutdown and the ongoing crisis in West Asia.
HDFC Securities also maintained a ‘Buy’ rating on the stock, while revising its price target downward to Rs 1,465. The brokerage noted that services revenue declined 0.1% quarter-on-quarter in constant currency terms, with weakness visible in the services, ER&D and software segments. This weakness was largely attributed to a slowdown in the telecommunications sector and a decrease in SAP-related work.
(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)