HCL Technologies (HCLT IN) – Q4FY26 Result Update – Q4 disappoints, cautious FY27 guidance amid headwinds – Downgrade to ‘REDUCE’

HCLT’s Q4 performance was significantly below expectations, with revenue declining 3.3% QoQ CC versus our estimate of –2.0% and consensus of –1.6%. The miss was driven by weakness in the Services business, impacted by cancellation of discretionary programs in select telecom clients and termination of two SAP modernization engagements, which are expected to weigh on FY27E revenue by ~50 bps. Beyond these specific headwinds, subdued discretionary spending amid geopolitical uncertainty, the near-term deflationary impact of AI, and continued softness in the Software segment are likely to weigh on growth. Consequently, FY27E organic revenue guidance of 1–4% and Services revenue guidance of 1.5–4.5% point to a weaker demand environment, with the upper end contingent on a recovery in macro conditions. Accordingly, we revise our revenue growth estimates downward to 2.6% and 3.8% YoY CC for FY27E and FY28E, respectively (vs. earlier 6.5% and 7.1%). On margins front, while FY26 restructuring impacts (~70 bps) are now behind us, ongoing investments in capability building are expected to keep margins under pressure; we therefore lower our EBIT margin estimates to 17.7% for FY27E and 18.0% for FY28E (vs. earlier 18.0% and 18.3%). We now factor in a USD revenue CAGR of 3.3% and INR EPS CAGR of 6.8% over FY26–28E; consequently, we cut our target PE multiple to 17x (from 20x) on FY28E earnings, leading to a revised target price of INR 1,300 (earlier INR 1,710), and downgrade the stock to REDUCE from BUY.