On Monday, UBS reiterated a Neutral rating on HCL Technologies (HCLT:IN), with a price target of INR1,500.00. The firm's analysis acknowledged HCL Technologies' first-quarter revenue dip of 1.6% quarter-over-quarter in constant currency and an EBIT margin of 17.1%. This performance was in line with revenue projections but fell short on margin expectations.
The company's deal wins in the quarter totaled $2 billion, which did not meet the average for the fiscal year 2024. Despite this, HCL Technologies' management has maintained its fiscal year 2025 revenue growth forecast of 3-5% year-over-year in constant currency and margin guidance of 18-19%.
They also expect to see sequential growth in the second quarter across all business segments except for Banking, Financial Services, and Insurance (BFSI), despite the impact of the State Street (NYSE:STT) account exit, which is estimated to affect margins by 80 basis points.
HCL Technologies' management has noted positive developments in certain areas of the business. However, a reduction in net headcount in the first quarter, excluding divestments, and a plan to hire fewer freshers in fiscal year 2025 compared to the previous year, indicate that demand stabilization may be some distance away.
The company's lack of significant deal wins and a weaker first half of the year are likely to challenge achieving the higher end of the revenue growth guidance.
The first-quarter margin fell short of UBS's expectations, partly due to revenue performance. Additionally, upcoming wage increases could put further pressure on the company's margin guidance.
Despite these challenges, HCL Technologies is still considered one of the top-performing tier 1 firms, leading UBS to maintain its Neutral rating on the stock.
In other recent news, HCL Technologies has seen significant developments in its financial outlook. Morgan Stanley maintained its Overweight rating on the company and raised the price target to INR1,705.
The firm's analyst emphasized HCL Technologies' need for strong performance in the upcoming quarters to meet its projected growth for fiscal year 2025. Despite this, the analyst anticipates potential lagging EBIT growth in fiscal 2025 due to a weaker first quarter.
Simultaneously, CLSA downgraded HCL Technologies' shares from 'Outperform' to 'Hold' and slightly adjusted the price target to INR 1,556. This change is largely attributed to the offshoring of a significant contract in the Banking, Financial Services, and Insurance sector and the provision of productivity benefits to major clients in the first quarter.
HCL Technologies recently reported its first-quarter revenue for the financial year 2025 at $3,364 million, a 5.6% increase year-over-year but a 1.9% decrease quarter-over-quarter. Despite the downgrade, the company's Ebit margin remained steady at 17.1%, aligning with consensus estimates.
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