CLSA has retained its ‘Outperform’ rating on HCL Technologies with a target price of ₹1,867, noting that while Q1FY26 was soft on the margin front, the company’s reaffirmed revenue growth outlook and long-term strategy remain intact.
In Q1FY26, HCL Tech reported a 0.8% QoQ CC revenue decline, led by a seasonal dip and the winding down of the BSNL project. The services business saw a smaller 0.1% decline, indicating relative stability in core operations. However, EBIT margin dropped to 16.3%, versus CLSA’s estimate of 17.2%, resulting in an operational miss of about 5%.
Importantly, HCL Tech lifted its FY26 CC revenue growth guidance to 3–5%, reflecting stronger confidence in deal ramp-ups later in the year. That said, margin guidance was cut to 17–18% from 18–19%, as the company absorbs higher investments in GenAI and sales, temporary overcapacity due to productivity initiatives, and a one-time hit from a client bankruptcy and restructuring costs.
CLSA believes that margins should recover to the 18–19% band by FY27, assuming no further one-offs and normalization in cost structures. “The margin decline, though disappointing, seems transitory and geared toward positioning the company for future growth,” the brokerage noted.
With the stock still trading at a discount to large-cap peers and demand visibility improving in the medium term, CLSA believes the downside is limited. “We continue to like HCL Tech for its balanced portfolio, strong client relationships, and improving long-term outlook.”
