HCL serves up a heady cocktail, but valuation leaves no room for error

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Subscribe to enjoy similar stories. HCL Technologies Ltd faced the Street’s wrath following its December quarter (Q3FY25) earnings, which had nasty surprises. Ahead of the Q3 announcement, HCL stock hit a new 52-week high of ₹2,012 on Monday, but it tanked around 8% on Tuesday.

Sequential constant-currency (CC) revenue growth of 3.8% was below the consensus estimate of 4.2%, dragged down by weaker-than-anticipated performance of the software business owing to delays in deal closures and renewals. On the other hand, the services business growth fared better despite furloughs and seasonality. This swift fall in the stock price indicates that Street’s expectations were elevated to begin with.

Muted equity market sentiment may also have accentuated the pain for HCL stock. Also read: Power thieves are dragging down one of India’s oldest power utilities Overall discretionary IT demand is picking up, but company-specific issues could hurt HCL’s Q4FY25 performance. Management attributed this to a planned ramp-down of the Verizon deal and some project completions.

The impact of this will be visible in the retail, consumer packaged goods (CPG) and telecom verticals of the services business in Q4. HCL also spoke about a slower ramp-up of discretionary deals, which is a dampener considering short-cycle deals are gaining momentum. The total contract value (TCV) of new deals was around $2.1 billion in Q3 versus $2.2 billion in Q2.

HCL did not win any mega deals in Q3. Management said its deal pipeline was very strong and near record highs. HDFC Securities pointed out that HCL’s new deal TCV remains soft and lower than the target of $2.3-2.5 billion.