HCL Technologies' stock rose 7% on Tuesday after select broking firms upgraded their earnings estimates, factoring in the positives in the September quarter (Q2FY27) results. Still, some factors cannot be overlooked amid macroeconomic uncertainty.
Sequential constant currency (CC) revenue grew 2.3%—below consensus estimate of 2.7%. Larger peer Tata Consultancy Services (TCS) clocked sequential CC revenue growth of 0.5% in Q2; Infosys’ results are not out yet.
The drag for HCL came from software business—down 5.8% CC sequentially, while services grew 3%. The quarter had a lower number of multi-year licences due for renewals vis-à-vis last year, which weighed on the software business, the management said, adding that the revenue decline does not accurately reflect the underlying health of that business. Services revenue growth included inorganic contribution from HPE Telco Solutions and Jaspersoft.
Inorganic growth could remain in the driver’s seat for FY27. Services revenue growth guidance was revised to 3-4% year-on-year, from 1.5-4.5%. Overall company guidance was changed to 2.5-4%, from 1-4% and includes an estimated 87 basis points (bps) contribution from inorganic growth.
“Consequently, the guidance midpoint increased by 75 bps to 3.25% from 2.5%. However, after adjusting for inorganic growth, this implies a modest reduction in the midpoint of organic growth guidance,” said Systematix Shares and Stocks (India). The revised range implies a 1.5–3.5% compound quarterly growth rate over Q3–Q4FY27 and Systematix expects HCL to deliver above-industry growth in FY27.