Motilal Oswal Financial Services has reiterated a BUY call on HCL Technologies, setting a target price of Rs 2,200, which implies an upside potential of about 32% from current levels. The brokerage’s confidence stems from a combination of stronger-than-expected quarterly execution, an upward revision in services growth guidance, and improving visibility on margin normalization. HCL Technologies continues to stand out among large-cap IT services peers as demand remains resilient in engineering, applications, and AI-led transformation work, even as discretionary spending remains selective. A sharp rise in deal wins, stable operating metrics, and a robust balance sheet reinforce the medium-term growth narrative.

Another Strong Quarter Reinforces Execution Credibility

HCL Technologies delivered a better-than-expected performance in 3QFY26, underscoring its ability to navigate an uneven global demand environment. Revenue rose 4.2% QoQ in constant currency terms, significantly ahead of initial expectations, driven by broad-based growth across service lines. Operating performance was equally encouraging, with EBIT margin expanding to 18.6%, surpassing estimates and reflecting tighter cost controls and improved utilization.

The company reported new deal wins of USD 3.0 billion, up 43.5% year-on-year, marking one of the strongest booking quarters in recent years. This sharp acceleration in deal activity has materially improved revenue visibility for the coming quarters.

Guidance Upgrade Signals Confidence in Services Momentum

Management raised its FY26 revenue growth guidance to 4–4.5% YoY in constant currency, narrowing the range and signaling stronger conviction. More importantly, services revenue growth guidance was lifted to 4.75–5.25%, placing HCL Technologies among the fastest-growing large-cap IT services firms globally.

EBIT margin guidance was maintained at 17–18%, despite ongoing investments in AI capabilities, go-to-market initiatives, and restructuring programs. This suggests that operational efficiencies and pricing discipline are expected to offset near-term cost pressures.

AI Demand Shifts From Experimentation to Foundation Building

Client conversations around artificial intelligence have evolved meaningfully over the past year. Rather than pilot projects, enterprises are now focused on data readiness, cloud modernization, and foundational AI infrastructure—areas where HCL Technologies has built strong execution credentials.

Management emphasized that near-term monetization is centered on “Day-minus-1” AI services, including data engineering, application modernization, and infrastructure transformation, rather than full-scale AI deployment. While discretionary spending remains selective, budgets are being allocated toward programs that enable future AI adoption.

Deal Pipeline Strengthens Revenue Visibility

The surge in bookings was driven by large, multi-year contracts across applications, engineering R&D, and platform-led services. The company secured a five-year mega deal worth USD 473 million in application modernization and data transformation, leveraging its proprietary AI Force 2.0 platform.

Annual contract value (ACV) reached a four-year high, supporting near-term growth visibility. While management cautioned that deal closures may remain lumpy quarter-to-quarter, the pipeline remains healthy, particularly in AI-led application services and large-scale system integration projects.

Margins Improve Despite Seasonal and One-Off Pressures

Operating margins expanded sequentially by around 110 basis points, aided by improved utilization, higher software segment profitability, and favorable currency movements. These gains were partially offset by wage hikes, furlough-related seasonality, and restructuring expenses.

Restructuring and labor code-related impacts are expected to remain largely one-off, with management guiding for margins to trend toward the upper end of the guided band over FY27–FY28. AI-led productivity improvements are expected to play a key role in sustaining margin expansion over the medium term.

Operational Metrics Remain Stable and Supportive

Employee metrics showed signs of stabilization, with LTM attrition declining to 12.4%, reflecting easing talent market pressures. Headcount remained largely flat sequentially, while the company continued to onboard fresh talent to support long-term growth initiatives.

Free cash flow generation remained robust, with operating cash flows comfortably exceeding net income, reinforcing HCL Technologies’ ability to sustain high shareholder payouts.

Financial Snapshot and Valuation Metrics

At the target price of Rs 2,200, the stock trades at about 26x FY28E earnings, which Motilal Oswal believes is justified given HCL Technologies’ superior growth profile, improving margins, and strong cash generation.

Investment View: Risk-Reward Remains Attractive

HCL Technologies continues to differentiate itself through its all-weather portfolio, strong execution in engineering and applications, and early positioning in enterprise AI transformation. While near-term risks include pricing pressure in application services and potential delays in discretionary spending recovery, the company’s diversified revenue base and rising deal wins provide a strong buffer.

Motilal Oswal reiterates its BUY rating with a target price of Rs 2,200, citing sustained growth momentum, improving ACVs, and medium-term margin normalization as key catalysts. For investors seeking exposure to large-cap IT with relatively higher growth visibility, HCL Technologies remains a compelling choice.