Geojit Investments has reiterated a HOLD rating on HCL Technologies Ltd, citing strong AI-led deal momentum and resilient engineering services growth, tempered by margin pressures and moderated earnings visibility. The company delivered double-digit revenue growth in Q3FY26, supported by robust large-deal wins, accelerating artificial intelligence adoption, and improving execution in managed services. However, elevated outsourcing costs and near-term profitability constraints continue to cap upside. With a rolled-forward target price of Rs. 1,906, Geojit believes HCL Tech offers steady but measured return potential over the next 12 months, best suited for investors with a medium-term horizon.

Research House View: Geojit Retains HOLD Rating

Geojit Investments Limited has reaffirmed its HOLD recommendation on HCL Technologies following the company’s Q3FY26 performance. The brokerage values the stock at 24x FY28E adjusted earnings, arriving at a revised target price of Rs. 1,906, implying a potential upside of about 10% from the current market price of Rs. 1,730.

The recommendation reflects a balance between sustained demand for digital transformation and AI services, and near-term margin headwinds stemming from higher outsourcing and investment costs.

Q3FY26 Performance: Revenue Growth Outpaces Profit Expansion

HCL Technologies posted consolidated revenue of Rs. 33,872 crore, marking a 13.3% year-on-year increase. On a constant currency basis, growth stood at 4.8%, driven primarily by strong deal execution, engineering services momentum, and AI-led transformation programs scaling across global clients.

IT and Business Services revenue rose 12.4% YoY to Rs. 24,504 crore, aided by improved utilization rates and better execution within managed services. Engineering and R&D services outperformed, expanding 18.3% YoY to Rs. 5,676 crore, with this segment accounting for 63% of the company’s highest-ever annual contract value (ACV) bookings.

Margins Under Pressure as Outsourcing Costs Rise

While topline performance remained robust, profitability showed signs of strain. EBITDA for the quarter increased 8.0% YoY to Rs. 7,412 crore, but margins contracted 110 basis points to 21.9%.

The margin compression was largely attributed to elevated outsourcing costs and continued investments in AI platforms, talent acquisition, and strategic partnerships. Sequentially, however, margins improved by 140 basis points, suggesting early benefits from cost optimization initiatives and operating leverage.

Deal Wins Signal Sustained Demand Visibility

One of the strongest positives in the quarter was deal momentum. HCL Tech reported new deal wins worth USD 3 billion in Q3FY26, representing a 17% QoQ and 43.5% YoY increase.

This surge was driven by multi-year renewals, digital modernization mandates, and higher pipeline conversion across key verticals. Notably, the company secured a USD 473 million, five-year contract with a global apparel retailer, centered on application modernization and data transformation using HCLTech’s proprietary Agentic AI Force 2.0 platform.

AI Strategy Deepens Through Partnerships and Innovation

HCL Technologies continues to position artificial intelligence at the core of its growth strategy. During the quarter, the company launched a Physical AI Innovation Lab with Nvidia in Santa Clara, strengthening its capabilities in robotics, industrial automation, and real-world AI use cases.

Expanded collaborations with AWS, Microsoft, SAP, Nvidia, and OpenAI are enabling faster AI adoption across client ecosystems, while also reinforcing HCL Tech’s relevance in next-generation enterprise technology spending.

Strategic Acquisitions Enhance Engineering Capabilities

To further bolster its services portfolio, HCL Tech acquired select telecom solution businesses from Hewlett Packard Enterprise (HPE) during Q3FY26.

The acquisition enhances HCL Tech’s telecom engineering depth, intellectual property portfolio, and R&D capabilities, positioning the company to capture long-term opportunities as global telecom networks undergo digital and AI-driven transformation.

Outlook: Growth Steady, Margins to Stabilize Gradually

Management has guided for 4.0–4.5% YoY constant-currency revenue growth for the consolidated business, with services revenue expected to grow 4.75–5.25% YoY. EBIT margins are projected to remain within the 17–18% range, reflecting disciplined execution while scaling AI investments.

Geojit expects revenue growth to remain resilient, supported by strong order books and sustained demand for engineering and AI services, while margin expansion is likely to be gradual rather than immediate.

Financial Trajectory and Valuation Metrics

HCL Tech’s financial projections underscore stable medium-term fundamentals:

Return ratios remain healthy, with ROE expected to rise from 23.6% in FY26E to 28.6% by FY28E, supported by improving profitability and disciplined capital allocation.

Investment View: Limited Upside, Stable Core Holding

At current levels, Geojit believes HCL Technologies offers predictable earnings visibility and strong balance-sheet fundamentals, but limited near-term upside given valuation comfort and margin constraints.

The stock remains well-suited for long-term investors seeking exposure to AI-led IT services growth, but fresh aggressive positioning may be better timed on market corrections.

Stock Levels and Investment Call

Current Market Price (CMP): Rs. 1,730
Target Price: Rs. 1,906
Potential Upside: ~10%
Investment Horizon: 12 months
Rating: HOLD