HCLTech Ups Forecast But Trims Margins

 

BENGALURU: HCLTech signaled improved demand confidence by raising the lower end of its FY26 revenue growth guidance to 3-5% (constant currency), up from 2-5%. However, the IT major simultaneously lowered its operating margin outlook to 17-18%, down from 18-19%, citing Q1 pressures and heavy AI investments.

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This revision follows mixed Q1 (June quarter) results:

Revenue Growth: Constant currency revenue grew 3.7% YoY and 0.8% sequentially. Services revenue rose 4.5% YoY, though dipped 0.1% QoQ.

Profitability Squeeze: Net profit fell 9.7% YoY to ₹3,843 crore. Operating margins declined significantly to 16.3% (vs 17.1% YoY and 17.9% last quarter).

Deals & Digital: Total deal wins were healthy at $1.8 billion. Digital revenue grew 15.2% YoY, now 41.6% of services.

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CEO C. Vijayakumar attributed the margin pressure to lower utilization, a one-time client bankruptcy impact, skill-location mismatches causing ramp-downs, and accelerated investments in Generative AI and go-to-market initiatives. He emphasized the company's AI propositions, bolstered by the OpenAI partnership, are resonating well with clients and pipeline growth remains stable.

The lowered margin guidance also factors in costs related to a planned restructuring program aimed at optimizing underutilized facilities and refining hiring strategies. While aiming for future margin improvement (18-19% range), this restructuring will impact near-term earnings.

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Chairperson Roshni Nadar Malhotra highlighted AI's integral role in client growth, stressing HCLTech's focus on its ethical deployment and positive social impact.

Despite the profitability challenges, HCLTech outperformed larger peer TCS in revenue growth for the quarter.