India’s third-largest IT services firm posts $3 billion in quarterly bookings; analysts see 13% upside as AI opportunities expand
Axis Securities upgraded HCL Technologies Ltd. to buy from hold, citing robust deal wins and improving growth visibility as the IT services giant bets big on artificial intelligence to drive future revenue.
The brokerage raised its 12-month price target to 1,880 rupees from 1,630 rupees, implying 13% upside from the current market price of 1,667 rupees. The new valuation is based on 25 times estimated fiscal 2027 earnings, up from 23 times previously.
“We believe HCL Tech is well-positioned for sustained long-term growth, supported by its multiple long-term contracts with leading global brands,” the analysts wrote. “Strong revenue visibility enhances our confidence in the company’s growth prospects.”
HCL reported third-quarter revenue of 338.72 billion rupees, up 13.3% year-on-year and 6% sequentially, broadly in line with estimates. However, net profit fell 11.1% to 40.82 billion rupees due to exceptional costs related to restructuring.
The standout metric was new deal bookings, which surged to $3 billion for the quarter, representing 17% growth quarter-on-quarter and 43% year-on-year. Management expects bookings to stabilize around a moving average of $2.5 billion per quarter going forward.
“Management witnessed a significant shift in client conversations over the past year,” the report noted. “Previously, discussions focused on small point solutions to prove value; now, clients are looking at holistic business process reimagining.”
The company narrowed its full-year revenue growth guidance to 4-4.5% in constant currency terms, up from the previous range of 3-5%, while maintaining EBIT margin guidance of 17-18%.
Axis Securities highlighted AI-led legacy modernization as a key growth driver. “Management anticipates that AI-led legacy modernisation will be a massive opportunity over the next two to three years, particularly in sectors with high custom software footprints like financial services and healthcare,” the report stated.
The brokerage also flagged the upcoming ramp-up of a $473 million mega deal with a global apparel retailer, which is expected to contribute to revenue starting in the fourth quarter.
Regional performance showed strong momentum in India and rest-of-world markets, with constant currency growth of 15.8% and 22.1% year-on-year respectively. Financial services and technology verticals posted healthy growth of 8.1% and 14.4%, though healthcare and retail segments saw modest declines.
EBIT margin came in at 18.6%, up 133 basis points sequentially but down 92 basis points year-on-year. Management noted that underlying margins stood at 19.4% excluding restructuring costs and the impact of India’s new wage code.
HCL declared an interim dividend of 12 rupees per share. The stock has traded between 1,303 and 2,012 rupees over the past 52 weeks.
Key risks include uncertainty around global recession threats and rising subcontracting costs that could pressure margins.
