The country’s third largest IT services firm, HCLTech on Monday, posted an 10.8% sequential drop in net profit for the April-June quarter to Rs 3,843 crore, falling short of Bloomberg estimates pegged at Rs 4,253 crore. Revenue was nearly flat at Rs 30,349 crore, inching up from the previous quarter and broadly in line with projections of Rs 30,298 crore. Operating margin narrowed sharply to 16.3% from 17.9% in Q4, marking the weakest June-quarter margin in six years.
The subdued numbers were largely attributed to lower employee utilisation, continued investments in generative AI and go-to-market capabilities, and a one-time client impact. HCLTech CEO and MD, C Vijayakumar said utilisation was weighed down by partial deployment of resources hired for a large deal that ramped up in March.
“We ramped up for a large deal in March that’s now scaling, reflected in the tech and services vertical revenue. However, parts of this specialised team are still not fully deployed. We’re winning more business, and as those wins convert to revenue, deployment will improve,” Vijayakumar said.
“There’s also a supply-demand mismatch, gaps in skills and location have led to a higher bench. Additionally, we’re investing in AI, which contributed to a 30 bps increase in SG&A. These factors together impacted margins, though gross and client-level margins remain stable,” he added.
A one-off impact from a client bankruptcy contributed to a 20 basis point hit on margins. Additionally, two large deals that were expected to close in Q1 were deferred to Q2 due to procedural delays. The company clarified that the overall demand environment remained steady during the quarter.
In light of ongoing margin pressures and anticipated restructuring costs, HCLTech revised its full-year operating margin guidance downward from 18–19% to 17–18%. The restructuring programme, aimed at both people and non-people areas, includes rightsizing underutilised facilities, especially those related to past acquisitions outside India, and talent realignment in those regions.
Despite the margin cut, the company raised the lower end of its FY26 revenue growth guidance. It now expects constant currency revenue to grow between 3–5% year-on-year, up from the earlier range of 2–5%.
The IT and business services segment, which generates over 70% of HCLTech’s topline, remained flat sequentially. The software business registered a 7% quarter-on-quarter revenue decline, while engineering and R&D services also posted a marginal drop. Operating margins declined across all three verticals.
Still, management pointed to early signs of resilience in its software unit. The annual recurring revenue from software subscriptions rose 1.3% year-on-year, signalling improving stickiness as the firm pushes for growth in that area.
Among customer verticals, technology and services as well as telecom posted the strongest year-on-year growth at 13.7% and 13%, respectively. The manufacturing vertical, especially its automotive segment, showed weakness, while retail and life sciences remained under pressure.
“Engineering and R&D services are seeing strong momentum, especially in the telecom service provider segment, supported by last year’s CTG acquisition (HCLTech acquired certain assets of Communications Technology Group from Hewlett-Packard Enterprise). We expect this to remain a key growth driver,” the management said.
HCLTech closed Q1 with $1.8 billion in new deal wins. This included six new clients in the $50 million-plus category and 11 clients in the $20 million-plus band, compared to the same quarter last year.