HCL Q4: Positives in play, but the downgrades keep coming

However, the Street seems to have derived optimism from HCL’s FY26 guidance and robust deal wins.

The company foresees year-on-year revenue growth of 2-5% in CC terms, for both consolidated and services business. While the guidance is modest, it is better than rivals Infosys Ltd and Wipro Ltd. “HCL's FY26 revenue growth guidance was slightly better than expectations, as well as Infosys (0%–3%), with reasonable required compound quarterly growth rate (0.3%–1.5%)," said Nuvama Research.

Read this | Big Four of Indian IT lose market share; HCL Tech's outlook offers little relief

The guidance includes around 100 basis points of inorganic contribution.

The lower end of the range assumes deterioration in macros, weighing on large deal closures in Q1FY26. The top-end assumes a stable macro environment, where strong Q4FY25 bookings continue to ramp up, and large deals close successfully in Q1FY26.

HCL acknowledges that the demand environment remains challenging. Macroeconomic headwinds, including tariff hikes and de-globalization, are seen impacting decision-making cycles. Therefore, the management remains cautious on retail, auto (tariff-sensitive sectors), and discretionary segments. However, energy, BFSI, and digital infrastructure are better positioned. Usual seasonality is expected in Q1FY26, but sequential revenue growth in the quarter would not be as weak as Q1FY25, it added.

HCL secured new deals worth a total contract value of approximately $3 billion in Q4FY25, bolstered by a mega deal, up from $2.1 billion in Q3FY25. This brings the total for FY25 to $9.4 billion. The deal pipeline remains robust, with near-record levels, and artificial intelligence (AI) and generative AI are integral components of most deals in the pipeline, it said. Both the Americas and the EU have seen considerable growth in the deal pipeline.

Overall, earnings before interest and tax (Ebit) margin declined sequentially to 18%, impacted by the second cycle of wage increments, product seasonality and higher expenses, partly offset by operating efficiencies and forex movements. The company maintained its Ebit margin guidance for FY26 at 18-19%.

Read this | What feeble order books foretell for India's tech bluechips

PL Capital anticipates further contribution from HCL’s high-margin products and platforms (P&P) business to FY26 margins, as the broking firm expects the segment to recover this year through expanding opportunities in emerging markets. Notably, FY25 saw P&P business growth of 3.5% year-on-year in constant currency terms, up from 2.3% in FY24 and 1.8% in FY23.

Still, that wasn’t enough to prevent earnings downgrades. While management highlighted a 75% year-on-year jump in FY25 ER&D bookings, the discretionary nature of these deals raises the risk of execution delays—potentially weighing on HCL’s organic growth prospects in FY26.

In a report dated 22 April, Kotak Institutional Equities noted that HCL had benefited from mega deal ramps over the past two years but now needs additional momentum to sustain strong growth. The brokerage has cut its FY25–27 earnings per share (EPS) estimates by about 2–5%.

Nomura Research has also cut its FY26-27F EPS by about 2% and target price from ₹1,840 (based on 25x FY27F EPS) to ₹1,670 (23x FY27F EPS), acknowledging rising macro uncertainty risks.

Also read | Mayhem for IT stocks as FIIs pull out big. What lies ahead?

Despite Wednesday’s gains, HCL’s shares are down about 20% from the 52-week high of ₹2,012.20 apiece seen on 13 January. Valuations are not comforting, however. At FY26 price-to-earnings, it is trading at multiple of 23x, showed Bloomberg data. This is a slight premium to Infosys Ltd and almost on a par with Tata Consultancy Services Ltd, leaving little room for error.