HCL Technologies reported its third-quarter earnings for the financial year ending March 2025, with mixed results that prompted varied responses from leading brokerages. The IT services giant posted a consolidated profit of ₹4,076 crore for the October-December period, representing a sequential decline from the preceding quarter's ₹4,235 crore.

Financial Performance Overview

The company's bottom-line performance fell short of analyst expectations, with Bloomberg's consensus estimate projecting an 11% growth to ₹4,702 crore. A significant factor impacting the results was the implementation of New Labour Codes, which resulted in an estimated one-time increase in provision for employee benefits worth ₹956 crore.

Brokerage Reactions and Target Price Revisions

Despite the sequential profit decline, several prominent brokerages issued positive notes and raised their target prices on HCL Technologies, citing strong operational indicators and improved outlook.

Morgan Stanley Assessment

Morgan Stanley maintained its Equal-weight rating while raising the target price to ₹1,760 from ₹1,680. The brokerage highlighted several positive aspects:

The brokerage noted that Q3 performance surprised positively, prompting an upgrade to the full-year outlook. Growth visibility into FY27 appears slightly better than earlier expectations, with margins expected to normalise around an 18% base next year. However, Morgan Stanley cautioned that strong recent performance is already reflected in premium valuations, seeing limited upside from current levels.

Kotak Securities Perspective

Kotak Securities maintained its Reduce rating but significantly raised the target price to ₹1,680 from ₹1,500. The brokerage's analysis revealed:

• The quarter was solid overall, driven primarily by the products segment
• Services performance was moderately better than expected
• Net-new bookings were strong, supported by a large deal win
• Limited scope for meaningful EBIT margin expansion due to cost takeout-led demand environment
• Valuations remain rich, with the stock trading at a premium to peers

Citi's Analysis

Citi maintained a Neutral rating while raising the target price to ₹1,700 from ₹1,670. The brokerage's key observations included:

Citi noted that forward-looking indicators remain stronger than peers, with management focused on identifying and tapping new spending areas. The brokerage has raised FY27 and FY28 earnings estimates by 2% each, though it maintains a cautious stance on the IT services sector overall.

Market Outlook

The mixed quarter results, characterised by profit decline due to one-time provisions but strong operational metrics, have led to cautious optimism among analysts. While brokerages acknowledge the impact of labour code provisions on current profitability, they remain positive about the company's deal momentum and forward-looking indicators. The consensus appears to be that while near-term challenges exist, the company's operational performance and deal wins provide a foundation for future growth.

The third quarter earnings season for India's IT sector has commenced on an encouraging note, with two leading software exporters delivering results that exceeded market expectations despite facing a traditionally challenging period due to holiday impacts.

Strong Order Booking Performance

Both companies demonstrated robust business momentum through their order acquisition metrics. The standout performer was HCL Technologies , which achieved a nine-quarter high in new order bookings, while TCS continued its consistent deal-winning streak.

Revenue Growth Trends and Guidance

HCL Technologies marginally improved its FY26 revenue growth guidance for the services segment to 4.75-5.25% from the earlier projection of 4-5% in constant currency terms. This upward revision reflects management's confidence in sustained business momentum.

An analysis of trailing 12-month (TTM) dollar-denominated revenue reveals contrasting trajectories for the two companies. TCS experienced a gradual deceleration in year-on-year top-line growth, with TTM revenue declining by 0.70% in the December quarter, compared to 5.40% growth in the comparable quarter two years ago.

Market Dynamics and Strategic Focus

According to HCL Technologies management, delays in discretionary spending are primarily affecting traditional transformation projects. However, investments in new technology platforms are gaining traction, particularly in:

• AI enablers such as datacenters
• Semiconductor solutions
• Generative AI applications
• Physical AI including robotics and automated vehicles

This market shift explains TCS's recent strategic announcements regarding investments in datacenter-related solutions as the company seeks to regain revenue momentum.

Workforce Management Strategies

The two companies have adopted different approaches to human resource management. HCL Technologies has renewed its focus on fresh talent acquisition, adding 10,000 freshers in the nine months to December 2025, compared to 6,000 in the year-ago period. In contrast, TCS has been implementing workforce optimization measures.

Market Outlook

For TCS, the declining TTM trend despite sustained new deal flow raises operational concerns, as it suggests challenges in deal ramp-up amid delayed client decision-making. The negative incremental TTM revenue of $216.00 million marks the first such occurrence in 20 quarters since December 2020, when pandemic impacts affected performance.

While TCS faces near-term pressure in translating deals into revenue growth, HCL Technologies appears positioned for potential rerating given its consistent growth trajectory, improved guidance, and strategic positioning in emerging technology segments.