HCL Q3 ANALYSIS 2025
FINANCIALS
HCL reported revenue of ₹29,890 crore for Q3 FY25, reflecting a growth of 3.8% quarter-on-quarter (QoQ) and 4.1% year-on-year (YoY). The profit after tax (PAT) for the quarter stood at ₹4,594 crore, marking an 8.4% QoQ increase and a 5.5% YoY rise.
Within the total revenue, services revenue amounted to ₹26,601 crore, showing a 2% growth QoQ and a 5.9% increase YoY. Meanwhile, software revenue contributed ₹3,386 crore, achieving a strong sequential growth of 18.2%, though it experienced a slight decline of 1% YoY.
geographical performance
In terms of geographical performance, America recorded a YoY growth of 6.2% and a QoQ growth of 1.9%. Europe saw a YoY growth of 2.6% and a robust QoQ growth of 3.5% in constant currency terms. The Rest of the World (RoW) remained flat YoY but achieved a QoQ growth of 2.9%.
Deal Wins
HCL secured 12 deal wins in Q3, with 7 deals in services and 4 deals in HCL Software. The total contract value of these deals for the quarter stood at $2.1 billion. Notably, the largest deal was driven by AI-led transformation initiatives.
Cash Position and Margin
HCL's operating cash flow over the last 12 months stood at ₹23,836 crore, while free cash flow amounted to ₹22,701 crore. The gross cash position was ₹30,001 crore, with net cash at ₹27,701 crore. Additionally, the HCL management announced an interim dividend of ₹12 per share and a special dividend of ₹6 per share, bringing the total dividend declared for the quarter to ₹18 per share.
Attrition Rate
HCL reported an attrition rate of 13.2% for the quarter, which is 30-40 basis points higher than the average rate over the last four quarters.
ANALYSIS AND REASONS
If we examine HCL’s revenue and PAT growth, both are at a fair level. The return on invested capital (ROIC) for the quarter stood at an impressive 36.6%. Overall, HCL Technologies delivered a solid Q3 performance, excluding the attrition rate of 13.2%.
However, as shown in the chart, HCL Technologies' share price declined by about 8.21%. This raises a pertinent question: why? Many shareholders might be puzzled by the decline despite a fair Q3 result. For a company in the IT sector, the results delivered by HCL Technologies are not subpar; in fact, they are fair and commendable.
Notably, in Q3 FY25, HCL achieved its highest-ever net profit and EBIT in a single quarter. The sole reason for the share price decline appears to be a slight miss in revenue compared to analysts' expectations.
VALUATION
HCL Technologies' compounded profit growth over the last 10 and 5 years stands at 15% and 9%, respectively. Currently, the price-to-earnings (P/E) ratio of HCL Technologies is 29. Based on the profit growth versus the price, the current P/E ratio appears to be quite expensive.
So, what’s the issue with considering HCL Technologies at this valuation? As the saying goes, "Price is what you pay, value is what you get." At the current range, HCL does not offer significant value for the price you pay. While it is possible to achieve modest returns from HCL at this level, expecting higher returns seems unrealistic.
Always keep the concept of opportunity cost in mind when making investment decisions.
NOTE: This WhatsApp group is not for recommendations on buying or selling financial instruments; it is solely for educational purposes.
{Caution: This article is for educational purposes only, Please consult a SEBI-registered investment advisor before making any investment decisions. This analysis is solely aimed at teaching the fundamentals of company analysis. }