HCLTech Sees Downgrade After Q1 Disappointment

The April-June quarter (Q1FY26) results and guidance of HCL Technologies (HCLTech) have resulted in disappointment.

- DEVANGSHU DATTA

HCLTech reported a revenue decline of 0.8 per cent quarter-on-quarter (Q-o-Q) in constant currency (CC) terms. But margins were lower than expectations, impacted by lower utilisation, GenAI investments, and client bankruptcy.

Guidance indicates that margins will remain subdued in Q2FY26, as some restructuring costs will spill over.

The FY26 earnings before interest and taxes (Ebit) margin guidance was lowered to 17-18 per cent (earlier 18-19 per cent). This was to account for margin pressure, upfront investments in GenAI, and planned restructuring expenses with an estimated impact of about 30-40 basis points (bps).

HCLTech expects utilisation to normalise by Q3FY26 and margins to improve in the second half of FY26. On the positive side, the lower band of revenue growth guidance was raised by 100 bps from 2-5 per cent to 3-5 per cent in CC terms. The implied revenue compound quarterly growth rate is in the range of 1.4-2.7 per cent for the lower and upper ends of revenue guidance for FY26, which is not so challenging, assuming deals ramp up from Q2.