Key Points
- Citi retains Sell rating on HCLTech with Rs 1,110 target price
- HCLTech plans Rs 35 billion investment in new India data centre
- Brokerage expects only 5 per cent EPS growth through FY29
Citi has retained its Sell rating on HCLTech Ltd, saying the Noida-headquartered IT services company’s artificial intelligence capabilities have not translated into revenue at levels comparable to its peers. The brokerage set a target price of Rs 1,110 following a meeting with the company’s senior leadership.
The rating shows Citi’s assessment that HCLTech’s advanced AI revenue remains difficult to compare with that of other large IT services companies. While the company has highlighted opportunities in AI services, engineering and business process outsourcing, Citi said these have not yet materialised into proportionate earnings.
The brokerage expects HCLTech to deliver earnings per share growth, meaning year-on-year increase in profit attributable to each share, of approximately 5 per cent through FY29. This limited growth outlook constrains the company’s valuation potential despite investments in emerging technology areas.
Citi’s assessment follows its meeting with HCLTech CEO and managing director C Vijayakumar and chief financial officer Ajay Mohan. The management team discussed opportunities arising from agentic AI, which refers to autonomous AI systems capable of executing multi-step tasks, and physical AI-led initiatives.
HCLTech AI revenue gap
The IT services company said its engineering and business process outsourcing capabilities are creating new opportunities. However, Citi noted that advanced AI revenue at the Noida-based firm remains below industry benchmarks.
The brokerage said HCLTech’s existing business could benefit from enterprise AI adoption, particularly through legacy modernisation projects and wider deployment of agentic AI. Companies across sectors are increasingly seeking to update older technology systems to work with newer AI tools.
Citi also flagged that the company’s software business has been sluggish over the past four quarters. It expects a recovery, projecting software revenue to grow at 3 to 4 per cent annually. Combined with earnings per share compound annual growth rate, the measure of average yearly growth over multiple years, of approximately 5 per cent through FY29.
Data centre investment
HCLTech plans to invest approximately Rs 35 billion to establish a new data centre facility in India, according to Citi. The brokerage noted that data centres have traditionally not been a focus area for the company because the business is more commoditised and asset-intensive than its core services.
The company now views data centres as a growth opportunity as demand rises from AI applications and other compute-intensive workloads. Citi said the new facility is expected to serve large domestic customers as well as global clients. The brokerage also noted that US startups lacking capacity to train AI models could outsource that work to HCLTech.
Engineering and software businesses remain areas where the company sees growth potential. However, Citi noted that the acquisition of ASAP had not delivered expected results. The deal was intended to strengthen engineering capabilities, particularly in the automotive sector.
The brokerage said overall artificial intelligence demand remained weak at present, although it expects demand to improve over the coming quarter.
HCLTech is unlikely to pursue significant acquisitions in Europe due to execution risks, Citi said. The company’s management indicated that acquisitions would need clear strategic rationale rather than scale for its own sake. Competitive intensity remains high across the IT services sector, with ongoing pressure on talent and deal pipelines.
By the numbers
Key figures from this story- Rs 1,110
- Citi target price for HCLTech shares
- Rs 35 billion
- Planned data centre investment in India
- 5%
- Expected EPS growth through FY29
On costs and margins, Citi said the company expects revenue per employee to increase by approximately 3 per cent, which should support margins. However, wage inflation and investment requirements could offset some of that benefit. The company remains committed to its dividend policy of paying at least 75 per cent of profit to shareholders.
Citi’s target price of Rs 1,110 is based on 15 times estimated March 2028 earnings per share. This multiple is below the company’s five-year average of approximately 21 times, showing the weaker growth outlook. The brokerage noted that HCLTech continues to trade at a premium to large-cap peers despite lower expected growth.
Citi identified several risks to its investment view that could lead shares to outperform its target: improved demand conditions, stronger deal bookings, higher utilisation, meaning the proportion of billable employee hours, better margins and faster-than-expected recovery in the US market.
Your Questions, Answered
Why has Citi retained a Sell rating on HCLTech?
Citi says HCLTech's AI capabilities have not translated into revenue at levels comparable to other IT services companies. The brokerage expects limited earnings growth of approximately 5 per cent through FY29, constraining the company's valuation potential.
What is Citi's target price for HCLTech shares?
Citi has set a target price of Rs 1,110, based on 15 times estimated March 2028 earnings per share. This multiple is below HCLTech's five-year average of approximately 21 times due to the weaker growth outlook.
How much is HCLTech investing in data centres?
HCLTech plans to invest approximately Rs 35 billion to establish a new data centre facility in India. The company now sees data centres as a growth opportunity as demand rises from AI applications.
What could change Citi's Sell rating on HCLTech?
Citi identified several factors that could lead shares to outperform: improved demand conditions, stronger deal bookings, higher utilisation rates, better margins and faster-than-expected recovery in the US market.
