IT · investment research
HCL Technologies
HCLTECH
Verdict
AVOID
medium confidence · 3-5 years
Composite score
56/100
Weighted across all eight pillars
Business quality
62/100
Moat, returns, balance sheet, cash, management
Valuation score
5/100
At 66.1x against a sector median of 43.8x, the price embeds roughly 49% earnings growth. Anything less has to come out of the multiple.
Decision intelligence
Every conclusion states what would make it wrong
WHAT
Avoid for now — the business or governance risk outweighs the opportunity.
WHY
- • Profitability & returns scores 100/100 (improving) — ROCE was 28.4% a year ago. Sustained ROCE above the cost of capital is what compounds value.
- • Valuation scores 5/100 (stable) — At 66.1x against a sector median of 43.8x, the price embeds roughly 49% earnings growth. Anything less has to come out of the multiple.
- • Business & moat scores 81/100 (improving) — Shelf presence and recall let the company hold price through input cost cycles.
- • Industry & macro scores 78/100 (improving) — IT (India) demand is improving.
WHERE
IT · Large cap · position sized to at most 0% of an equity portfolio.
WHEN
Re-run this analysis after the next quarterly result.
WHAT IF WRONG
- • The thesis is wrong if ROCE falls below 34% or cash conversion stays under 70% for two straight quarters.
- • Valuation support fails below ₹2,758 of fair value — a drawdown to that level is a re-underwrite, not automatically a buy.
- • Watched risk: Promoter pledge — 21.3% of promoter holding is pledged.
WHAT NEXT
- • Read the latest quarterly cash-flow statement alongside the P&L.
- • Check US/EU tech spend — it moves the earnings base independently of execution.
- • Compare against the sector peers listed below before sizing anything.
HCL Technologies is a moat-protected it business compounding revenue at 9.9% and profit at 2.5%, earning 38.1% on capital. Quality scores 62/100 and valuation 5/100 at 66.1x. The decision is therefore avoid with medium confidence — this is analysis for learning, not investment advice.
What does this business actually do?
Business understanding before ratios
HCL Technologies operates in the Indian it sector with a large-cap footprint and a listed market value of about ₹445k Cr.
Revenue is earned across 4 reported segments; profitability is driven by realisations, mix and operating leverage rather than one-off items.
Revenue drivers
- • Volume growth in the core segment
- • Realisation / pricing power
- • Mix shift toward higher-margin lines
- • Capacity utilisation
Cost drivers
- • Raw material and input costs
- • Employee cost inflation
- • Interest cost on borrowings
- • Distribution and marketing spend
Moat · 78/100
Brand & distribution
Shelf presence and recall let the company hold price through input cost cycles.
Segment mix
Growth 16.7% · margin 6.2% — Growing broadly in line with the overall business.
Growth 32.3% · margin 31.2% — Fastest growing part of the mix — watch whether margins hold as it scales.
Growth 11.7% · margin 16.6% — Growing broadly in line with the overall business.
Growth -7.2% · margin 10.4% — Flat to declining; drags the consolidated growth rate.
Analysis pillars
Score, trend and the drivers behind each — no bare numbers
Business & moat
81/100Trend: improving · weight 14%
- MoatBrand & distribution
Shelf presence and recall let the company hold price through input cost cycles.
- Segment concentrationDigital & cloud services is 22% of revenue
Revenue is spread across segments, which softens single-market shocks.
- EBITDA margin28.0%
Margin moved from 17.0% to 28.0% year on year.
Profitability & returns
100/100Trend: improving · weight 16%
- ROCE38.1%
ROCE was 28.4% a year ago. Sustained ROCE above the cost of capital is what compounds value.
- ROE36.8%
Return on equity after leverage — read alongside debt levels.
- Net margin12.0%
Share of every rupee of revenue that reaches reported profit.
Growth quality
32/100Trend: deteriorating · weight 15%
- Revenue CAGR (4y)9.9%
Top-line compounding over the reported history.
- Profit CAGR (4y)2.5%
Profit lags revenue, so growth is being bought with margin.
- Growth sourceCapex-led (organic)
Capex is 14.0% of revenue this year.
Balance sheet
32/100Trend: deteriorating · weight 12%
- Debt / EBITDA2.00x
Leverage is serviceable from current cash generation.
- Debt / equity1.52x
Capital structure relative to shareholder funds.
- Working capital32 days
Cycle is tight, so growth is largely self-funding.
Cash conversion
35/100Trend: stable · weight 13%
- OCF / PAT75%
Reported profit is backed by operating cash.
- Free cash flow₹-7,615 Cr
Cash left after maintaining and expanding the asset base.
Management & governance
64/100Trend: deteriorating · weight 14%
- Guidance delivery78% of last 8 quarters
Whether management historically delivered what it promised.
- Promoter holding65.8% (-0.38 y/y)
Promoter ownership is stable or rising.
- Pledge21.3% pledged
Pledged promoter shares add forced-selling risk in a drawdown.
- Institutional flowFII +2.18 · DII -1.79
Direction of institutional ownership over the last year.
- Capital allocationGrowth has been part-funded with debt; increment…
Growth has been part-funded with debt; incremental returns need to clear the cost of that debt.
Industry & macro
78/100Trend: improving · weight 8%
- Demand trendimproving
IT (India) demand is improving.
- StructureConsolidated
Consolidated — a few large players hold most of the profit pool.
- Competitive intensitymedium
How hard it is to keep pricing and share.
- Macro driversUS/EU tech spend, USD/INR, Wage inflation
Variables that move the earnings base regardless of company execution.
Valuation
5/100Trend: stable · weight 8%
- P/E vs sector66.1x vs 43.8x
At 66.1x against a sector median of 43.8x, the price embeds roughly 49% earnings growth. Anything less has to come out of the multiple.
- Growth-adjusted26.03 (PE/growth)
Below ~1.5 the multiple is supported by growth; above ~2.5 it depends on the market staying optimistic.
- FCF yield-1.71%
Cash return on the current market value, before any growth.
Financial history
Profit, cash and returns over five reported years
| Year | Revenue | EBITDA | PAT | OCF | FCF | ROCE |
|---|---|---|---|---|---|---|
| FY2022 | ₹1.05 L Cr | ₹31,486 Cr | ₹16,688 Cr | ₹11,181 Cr | ₹-1,413 Cr | 37.5% |
| FY2023 | ₹1.17 L Cr | ₹29,256 Cr | ₹20,187 Cr | ₹13,929 Cr | ₹8,078 Cr | 36.8% |
| FY2024 | ₹1.29 L Cr | ₹19,364 Cr | ₹12,393 Cr | ₹8,799 Cr | ₹3,635 Cr | 35.2% |
| FY2025 | ₹1.41 L Cr | ₹23,998 Cr | ₹14,399 Cr | ₹10,511 Cr | ₹2,041 Cr | 28.4% |
| FY2026 | ₹1.53 L Cr | ₹42,905 Cr | ₹18,449 Cr | ₹13,837 Cr | ₹-7,615 Cr | 38.1% |
No accounting-quality flags in the sample data.
Ownership & management
Who owns it, and have they delivered?
Promoter
65.8%
-0.38 y/y
Pledge
21.3%
Forced-selling risk
FII
11.5%
+2.18 y/y
DII
28%
-1.79 y/y
Guidance delivered in 78% of the last eight quarters; average leadership tenure 18 years.
Growth has been part-funded with debt; incremental returns need to clear the cost of that debt.
No governance flags raised by the sample dataset.
Industry & macro context
IT (India)
Demand trend
improving
Cyclicality
medium
Competition
medium
Regulatory pressure
low
Consolidated — a few large players hold most of the profit pool.
Macro drivers: US/EU tech spend · USD/INR · Wage inflation
Valuation
expensive versus the sector
P/E
66.1x
Sector median P/E
43.8x
P/B
7.15x
Earnings yield
1.51%
FCF yield
-1.71%
PE / growth
26.03
Estimated fair-value band ₹2,758 – ₹3,524 , built on FY2026 EPS of ₹68.1. Gap to the current price: +91.3%. Ranges are a modelling output, not a target price.
At 66.1x against a sector median of 43.8x, the price embeds roughly 49% earnings growth. Anything less has to come out of the multiple.
Risk register
What can break the thesis, and how it is monitored
- Promoter pledgehigh
21.3% of promoter holding is pledged.
Monitor: Pledge disclosures with each shareholding filing.
- Valuation riskhigh
The multiple already discounts a lot of future growth.
Monitor: Any quarter where growth slows below the implied rate.
Ongoing thesis monitoring
The thesis is a living position, not a one-time verdict
| Metric | Currently | Thesis holds if | Thesis breaks if |
|---|---|---|---|
| ROCE | 38.1% | stays above 35% | falls for two consecutive years |
| Cash conversion | 75% | stays above 80% | drops below 70% while revenue grows |
| Revenue growth | 9.9% CAGR | tracks the 49% priced in | slows for two quarters with no margin offset |
| Promoter holding | 65.8% | stable or rising | falls sharply or fresh pledge appears |
Peers in the same sector
Compare before sizing anything
Data quality 72/100
Stated openly, as required by the product principles
- • Fundamentals in this build come from a deterministic sample dataset, not licensed exchange filings.
- • Segment, ownership and management figures are illustrative and must be verified against annual reports.
- • Educational analysis only — not a recommendation to buy or sell any security.