Citi has maintained its ‘Neutral’ rating on HCL Technologies with a target price of ₹1,650, following the company’s Q1FY26 performance that was broadly mixed. While revenue delivery was in line, profitability took a hit due to margin pressures, and Citi warned of ongoing sector challenges and the need for sustained investment.
HCL Tech reported Q1FY26 constant currency revenue decline of 0.8% QoQ, with flat performance in IT services. EBIT margins fell to 16.3%, down 150bps QoQ, impacting profit delivery. HCL Software, the product business, reported a 3% YoY decline in revenue, indicating softness in non-services segments.
Citi highlighted that trailing 12-month total contract value (TTM TCV) declined 10% YoY, raising concerns about deal momentum. While headcount increased 2% YoY, and the company maintained that the environment hasn’t worsened, Citi observed mixed signals across verticals. “Financial services and technology show promise, but retail/CPG, life sciences, and manufacturing remain weak,” the brokerage noted.
Citi believes that HCL Tech’s performance highlights the need to continue investing to drive growth, but these investments come with near-term margin risks. As a result, Citi has reduced FY26/FY27 EPS estimates by ~5% and 3%, respectively.
The brokerage maintains a neutral stance, suggesting that while HCL Tech is positioned to benefit from eventual demand recovery, the current setup doesn’t offer a compelling risk-reward given the growth uncertainty and compressed margins.
