HCL Technologies shares drop over 8% following Q3 FY25 results

The share price of HCL Technologies experienced a sharp decline, tumbling 8.46% to ₹1,817.20 on the BSE following the release of its Q3 FY25 earnings report. This marked one of the steepest single-day losses for the company in recent months, prompting discussions among investors about its potential implications for share market investment.

Key highlights from HCL Technologies Q3 FY25 earnings

HCL Technologies, India’s third-largest IT services provider, reported a mixed bag of results for the December quarter:

1. Net profit growth: The company posted a net profit of ₹4,591 crore, reflecting an 8.4% rise compared to ₹4,235 crore in Q2 FY25.
2. Revenue increase: Total revenue grew 3.6% sequentially to ₹29,890 crore, with USD revenue rising 2.6% to $3,533 million.
3. EBIT margin expansion: EBIT improved by 8.6% QoQ to ₹5,821 crore, with margins expanding by 90 basis points to 19.6%.
4. Dividends declared: The company announced an interim dividend of ₹12 per share and a special dividend of ₹6 per share, demonstrating its focus on shareholder returns.

Despite these achievements, a narrowed revenue guidance of 4.5%-5% for FY25 raised concerns, overshadowing the positive aspects of the report.

Market reaction and analysts’ insights

The stock’s significant drop is attributed to several factors impacting share market investment sentiment:

• Disappointing revenue guidance: Analysts noted the narrowing of HCL Tech’s FY25 constant currency revenue guidance, suggesting potential softness in Q4 due to planned deal ramp-downs.
• Valuation concerns: At 28.5x FY26E PE, HCL Tech’s valuation appears stretched, leading several brokerage firms to downgrade the stock.
• Consolidation phase: Following a robust 28% rally over the past six months, analysts predict a short-term consolidation due to near-term challenges.

While the dip might deter some, analysts suggest it could present a buying opportunity for long-term investors. With a strong support level at ₹1,710 per share, the stock is expected to rebound to ₹1,800 and potentially ₹1,950 in the near term, provided broader market conditions remain favourable.

Should you invest now?

For those exploring share market investment, the current correction in HCL Tech’s share price offers a potential entry point. Its strong fundamentals, robust deal pipeline, and high free cash flow generation position the company for future growth. However, with challenges like narrowed revenue guidance and valuation concerns, investors are advised to proceed cautiously and adopt a buy-on-dips strategy with a strict stop-loss at ₹1,710.

Summing up

HCL Technologies’ Q3 FY25 results prompted a sharp market reaction, with the stock plunging over 9% to ₹1,797.75 by 10:40 AM on January 14, 2025. The shares opened at ₹1,936.10, reflecting investor concerns following the earnings announcement. While net profit grew 8.4% to ₹4,591 crore and EBIT margins expanded to 19.6%, narrowed FY25 revenue guidance overshadowed these positives. 

Analysts predict short-term consolidation due to valuation concerns and planned deal ramp-downs. However, the company’s strong fundamentals, high free cash flow, and strong deal pipeline make it a compelling option for share market investment enthusiasts. Investors are advised to adopt a buy-on-dips strategy, with a stop-loss at ₹1,710, as HCL Tech’s long-term growth prospects remain intact.