HCLTech Reports 11% Decline in Q1 Profit to ₹3,843 Crore

HCLTech, India’s third-largest IT services firm, reported a 10.8% sequential drop in net profit for the April–June quarter of FY26, with net earnings at ₹3,843 crore. The figure missed Bloomberg consensus estimates of ₹4,253 crore, signalling a weaker-than-expected quarter for the tech major.

Revenue Remains Flat, Margins Take a Hit

Revenue for Q1 stood at ₹30,349 crore, showing a marginal uptick from the previous quarter and broadly aligning with street expectations of ₹30,298 crore. However, operating margin fell sharply to 16.3% from 17.9% in Q4 FY25, marking the lowest June-quarter margin in six years.

Key Factors Behind Weak Performance

The decline in profitability and margins was attributed to several interrelated factors:

• Low employee utilisation, particularly from partially deployed teams hired for a large deal signed in March

• Investments in generative AI and go-to-market capabilities

• A one-time client-related impact stemming from bankruptcy

• Supply-demand mismatches and skill-location gaps, increasing bench strength

CEO and MD C Vijayakumar said, “We ramped up for a large deal that’s now scaling, but parts of the specialised team are not yet fully deployed.”

Impact of AI Investment and Deferred Deals

HCLTech’s continued push into AI capabilities also weighed on margins. The company reported a 30 basis point (bps) increase in Selling, General & Administrative (SG&A) expenses due to AI-related investments.

Additionally, two large client deals that were expected to close in Q1 were deferred to Q2 due to procedural delays, further denting quarterly performance.

Restructuring and Margin Guidance Cut

Given the current margin pressures, HCLTech revised its full-year operating margin guidance from 18–19% to 17–18%. The company also launched a restructuring programme targeting both people and non-people costs.

This includes:

• Rightsizing underutilised facilities, especially those acquired in past international deals

• Talent realignment in low-utilisation regions

Despite the margin guidance cut, the company raised the lower end of its FY26 revenue guidance. Constant currency revenue growth is now expected at 3–5%, up from the earlier 2–5% range.

Segment Performance: Software and R&D Witness Decline

HCLTech’s core IT and business services, which contribute over 70% of revenue, remained flat quarter-on-quarter. However:

• The software business declined 7% sequentially

• Engineering and R&D services also posted a marginal drop

• Operating margins fell across all three verticals

Still, the company pointed to resilience in the software unit, where Annual Recurring Revenue (ARR) from subscriptions rose 1.3% YoY, indicating higher client retention and engagement.

Industry Verticals: Mixed Trends

Vertical-wise, there was double-digit growth in:

• Technology and services: +13.7% YoY

• Telecom: +13% YoY

However, manufacturing, particularly in the automotive segment, saw weakness, and retail and life sciences remained under pressure.

Management said, “Engineering and R&D services are gaining momentum, especially in telecom, driven by last year’s CTG acquisition from Hewlett Packard Enterprise.”

New Deal Wins Touch $1.8 Billion in Q1

Despite the challenging quarter, HCLTech closed Q1 with $1.8 billion in new deals, including:

• 6 new clients in the $50 million+ category

• 11 clients in the $20 million+ category, compared to the same period last year

These wins reflect continued customer confidence and pipeline strength, even as macroeconomic and sectoral pressures remain.

Conclusion: Recovery Hinges on Utilisation and Deal Execution

While HCLTech's Q1 FY26 results were below expectations, the company maintains a steady demand outlook and expects a stronger second quarter. Improving utilisation rates, deal closures, and better margin control will be key to recovery in the coming quarters.

As it navigates AI transformation, restructuring, and global uncertainties, HCLTech remains focused on driving long-term value through innovation and client-centric growth.