HCL Technologies Limited — Q3 FY26 earnings call

Call held 12 Jan 2026

Management summary

HCLTech delivered a strong Q3 FY26, exceeding expectations with robust revenue growth, record bookings, and improved operating margins. The company raised its full-year services revenue guidance, driven by significant traction in AI-powered solutions and engineering services, alongside strategic acquisitions. While facing some one-time costs and seasonal impacts, management expressed confidence in its growth trajectory and disciplined approach to profitability.

Highlights

  • Revenue growth of 4.8% YoY and 4.2% QoQ in constant currency, reaching $3.79 billion.

  • Crossed $15 billion in annualized revenue.

  • Net new bookings of $3 billion, up 43% YoY and 17% QoQ.

  • Operating margin (excl. new labor code impact) at 18.6%, up 111 bps QoQ.

  • Full-year services revenue growth guidance raised to 4.75%-5.25% in CC.

  • Strong performance in Engineering and R&D Services (10.8% YoY CC growth).

  • Acquisition of Telco Solutions from HPE and Jaspersoft/Wobby to strengthen offerings.

  • Interim dividend of INR 12 per share declared.

Concerns

  • Operating margin decreased 94 bps YoY (including restructuring costs).

  • Impact of new labor code on EBIT and Net Income (one-time impact of $109 million).

  • Restructuring costs of 81 basis points impacted Q3 margins, with similar impact expected in Q4.

  • Slight decline in headcount (0.1% QoQ).

  • DSO increased by 3 days QoQ to 81 days due to seasonality in software business.

Key financials

4 periods

Headline

  • Revenue
    3,793 Mn
    YoY +4.8% QoQ +4.2%
  • Annualized Revenue
    15 Bn
  • Operating Margin (excl. new labor code)
    18.6%
    QoQ +1.1%
  • EBIT
    704 Mn
  • Net Income
    537 Mn
  • EBIT (incl. new labor code)
    595 Mn
  • Net Income (incl. new labor code)
    455 Mn
  • Operating Cash Flow to Net Income Conversion
    127%
  • Free Cash Flow to Net Income Conversion
    120%
  • Gross Cash
    3.82 Bn
  • Net Cash
    3.55 Bn
  • DSO
    81 days
  • Headcount
    2,26,379
    QoQ -0.1%

LTM

  • ROIC
    39.4%
    YoY +2.8%
  • Operating Cash Flow
    2.5 Bn
  • Free Cash Flow
    2.35 Bn
  • Attrition
    12.4%

LTM, excl. new labor code

  • Diluted EPS
    ₹60.7

LTM, incl. new labor code

  • Diluted EPS
    ₹63.35
    YoY +0.7%

What they filed

Q1 FY27: revenue up 13.9%, net profit up 20.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue28,862 29,890 30,246 30,349 31,942 +11%33,872 +13%33,981 +12%34,579 +14%
EBITDA6,369 6,860 6,482 6,035 6,545 +3%7,412 +8%6,712 +4%6,870 +14%
Net profit4,237 4,594 4,309 3,844 4,236 −0%4,082 −11%4,490 +4%4,626 +20%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Services
    3,379 Mn Revenue1.8% QoQ CC Growth5% YoY CC Growth45.9% ROIC (LTM)
  • IT and Business Services
    1.5% QoQ CC Growth3.8% YoY CC Growth
  • Engineering and R&D Services
    3.1% QoQ CC Growth10.8% YoY CC Growth
  • Software
    425 Mn Revenue28.1% QoQ CC Growth3.1% YoY CC Growth1.07 Bn Annual Recurring Revenue0.6% ARR YoY CC Growth23.1% ROIC (LTM)
  • USA
    1.5% YoY CC Growth
  • Europe
    4.6% YoY CC Growth
  • India
    15.8% YoY CC Growth
  • Rest of the World
    22.1% YoY CC Growth
  • Financial Services
    8.1% YoY CC Growth
  • Technology
    14.4% YoY CC Growth
  • Manufacturing
    4.1% QoQ CC Growth
  • Retail and CPG
    5.8% QoQ CC Growth
  • Public Services
    3.7% QoQ CC Growth

Order book

high confidence

Inflow this quarter

$3 Bn

Composition

  • Applications and Engineering & R&D Services (service line) 63%

Pipeline

deal pipeline tcv

Strong pipeline

The company reported strong net new bookings and the highest ACV bookings in four years, driven by traction in applications and engineering & R&D services. The pipeline remains strong.

Source: Prepared remarks

Capital allocation

high confidence
  • Dividend ₹12/share (interim)
    The Board has declared an interim dividend of INR 12 per share for the quarter and the record date is 16th of January and the payment date of the same shall be January 27, 2026.
  • M&A Telco Solutions Business from Hewlett Packard Enterprise (HPE) Acquisition · Closed · Consideration ₹[object Object] (undisclosed)

    To reinforce leadership in telecom service provider industry, gain industry-leading intellectual property, and enhance product engineering and R&D capabilities.

    This quarter, we acquired Telco Solutions Business from Hewlett Packard Enterprise (HPE).
  • M&A Jaspersoft and Wobby Acquisition · Announced · Consideration ₹[object Object] (undisclosed)

    To strengthen the Data and AI division's offerings by combining Actian enterprise data management capabilities with Jaspersoft advanced analytics and Wobby's proprietary semantic layer and agentic architecture.

    During the quarter, we announced the acquisition of Jaspersoft and Wobby which will strengthen this division's offerings.
  • Liquidity Cash $3.82 Bn
    The balance sheet continues to strengthen with gross cash at $3.82 billion and net cash at $3.55 billion.

Guidance & targets

Revenue

  • Full year services revenue growth Revenue · FY26 · High confidence 4.75% to 5.25%
    On the back of a standout quarter and sustained growth momentum, we are raising our full year services revenue growth guidance to 4.75% to 5.25% in constant currency terms

    — Shiv Walia

  • Full year company level revenue growth Revenue · FY26 · High confidence 4% to 4.5%
    and the company level guidance to 4% to 4.5% in constant currency terms.

    — Shiv Walia

Margin

  • Full year EBIT margin Margin · FY26 · High confidence 17% to 18%
    We remain on track to deliver on our full year EBIT margin guidance of 17% to 18%.

    — Shiv Walia

Profitability

  • Restructuring costs impact on margins Profitability · FY26 · Medium confidence 50 basis points
    Abhishek, if you recall, we have indicated that for the full year, we will have an impact of 50 basis points on our margins. This is a one-off restructuring cost this year. And we expect the similar kind of impact in Q4 also.

    — Shiv Walia

  • Recurring impact of new labor code Profitability · Ongoing · Medium confidence 10 to 20 bps
    No, your understanding is correct. We have already taken the one-off charge in the P&L. And going forward, we don't expect this to be more than 10 to 20 basis points on a recurring basis.

    — Shiv Walia

What to watch in Q4 FY26

Restructuring costs impact in Q4

next quarter
Current 81 bps impact in Q3
Target Similar impact in Q4, aiming for clean state in new FY

Why it matters

To verify the completion of the restructuring exercise and its impact on Q4 margins as guided.

Our endeavour is to finish this exercise by Q4 and start the new financial year on a clean state. So, I expect a similar kind of charge in the Q4 also.

Risks & concerns

  • Restructuring costs impact on margins

    medium

    Restructuring costs impacted Q3 margins by 81 bps, with a similar impact expected in Q4.

    Management acknowledged

  • Global market uncertainties and slow spending on traditional offerings

    medium

    Uncertainties persist in the global market leading to slow spending growth on traditional offerings.

    Management acknowledged

  • One-time impact of new labor code

    low

    One-time impact on EBIT and Net Income in Q3, with a recurring impact of 10-20 bps expected.

    Management acknowledged

  • Tariff uncertainty in manufacturing vertical

    low

    Tariff uncertainty continues to affect companies in the manufacturing sector.

    Analyst acknowledged

  • Seasonality in software business

    low

    Seasonality contributed to DSO increase and revenue fluctuations in the software business.

    Management acknowledged

Q&A highlights

5 direct, 1 evasive
Evolution of AI discussions and service lines benefiting from AI implementation Direct
On the Al conversations last year to this year, definitely, there is a lot more holistic conversation on how Al would change the entire organization. ... The real acceleration in what we are seeing is not necessarily in deploying Al within enterprises, but really "Day -1" services, which are foundational for enabling Al, like a lot of work in our engineering services.

Clarifies the shift in AI discussions from point solutions to holistic transformation and highlights 'Day -1' services (foundational AI infrastructure) as the current area of strong traction, especially in engineering services.

Asked by Abhishek Pathak

Pending restructuring charges and continuation of SG&A investments Direct
Abhishek, if you recall, we have indicated that for the full year, we will have an impact of 50 basis points on our margins. This is a one-off restructuring cost this year. And we expect the similar kind of impact in Q4 also. ... And, on the SG&A part, we will continue to invest on the Al solutions as well as on the GTM.

Provides clarity on the expected impact of restructuring costs for the full year and confirms continued investment in SG&A for AI solutions and go-to-market strategies.

Asked by Abhishek Pathak

Strong Retail vertical performance and contribution from mega deal Direct
No, there is no contribution from the mega deal this quarter. It will start ramping up in the current quarter. And retail is really coming from a number of wins. In a couple of large clients, where we have won business in the previous quarters, they are getting into execution.

Clarifies that the mega deal's contribution is yet to come, attributing current retail growth to execution of previously won deals, indicating organic strength.

Asked by Ravi Menon

Software segment performance and broader IT spending trends Partial
I don't think this is reflective of broader IT spending. We have the seasonality, which has driven strong growth. There is a very strong demand for data intelligence portfolio. ... And very significant couple of wins were also on our marketing automation platform...

Management attributes strong software growth to seasonality and specific product strengths (data intelligence, marketing automation) rather than a general pick-up in IT spending, suggesting caution on extrapolating to the wider market.

Asked by Ravi Menon

ER&D sequential margin drop despite good growth Direct
Yes, that's correct. If you take out the impact of restructuring costs, then the margins were 17.6% versus 18% last year. And this quarter, there's around 90 basis point impact of wage hike we had given and also another 30-40 basis point of furloughs. So that's what caused the slight dip in the margins.

Explains the specific factors (restructuring, wage hikes, furloughs) contributing to the ER&D margin dip, providing transparency on cost pressures.

Asked by Sudheer Guntupalli

Outlook for Manufacturing vertical, including auto and tariff uncertainty Partial
We are seeing good traction in aero and defense, and that has contributed to some of the growth. In the mobility segment, especially in the engineering services, we are seeing stability coming but it's still a little early to call out if there is secular growth in this segment. ... manufacturing, I think it is still a little bit muted, I would say. ... Yes. Yes. [on tariff uncertainty]

Provides a nuanced view of the manufacturing vertical, highlighting pockets of strength (aero/defense) but acknowledging muted performance in traditional manufacturing and persistent tariff uncertainties.

Asked by Vibhor Singhal

Future margin guidance beyond Q4 FY26 Evasive
As regards to OND‘25 performance, if we normalize the restructuring cost, the margins were 19.4%, versus 19.5%. That's a very healthy sign that structurally, there's no issues with the margins. But for the next year, we'll update you in April on what sort of guidance we want to give, but I would not like to call out the margins for next year now.

Management defers providing FY27 margin guidance, indicating it will be updated in April, but reassures that current normalized margins are healthy, suggesting no structural issues.

Asked by Vibhor Singhal

Impact of incremental recurring labor law costs Direct
No, your understanding is correct. We have already taken the one-off charge in the P&L. And going forward, we don't expect this to be more than 10 to 20 basis points on a recurring basis.

Confirms the limited recurring impact of the new labor law on margins, providing clarity for future modeling.

Asked by Sandeep Shah

2 min read 6 chapters

Detailed narrative

Q3 FY26 Performance Overview

HCLTech reported a strong Q3 FY26 with total revenue of $3.79 billion, marking a 4.8% YoY and 4.2% QoQ growth in constant currency. The company also achieved an annualized revenue run rate exceeding $15 billion, demonstrating the scale and durability of its growth model. This performance was underpinned by robust contributions from both services and software segments, with services revenue growing 5% YoY and software revenue growing 3.1% YoY in constant currency.

AI Strategy and Traction

The company highlighted significant momentum in AI-powered solutions, including physical AI, AI Factory, and custom silicon engineering. Advanced AI solutions grew 19.9%, with specific SKUs of their AI Force platform deployed across 60 priority accounts. Engineering and R&D Services (ERS) showed strong growth of 10.8% YoY in constant currency, driven by demand for AI engineering services and custom silicon development. Management noted a shift towards holistic AI transformation, with 'Day -1' services (foundational AI infrastructure) seeing strong traction.

Record Bookings and Strategic Deal Wins

HCLTech secured net new bookings of $3 billion, representing a 17% QoQ and 43% YoY increase, with ACV bookings reaching a four-year high. A notable win was a 5-year strategic engagement with a global apparel retailer, valued at $473 million TCV, focused on modernizing applications and data landscapes using the Agentic AI Force 2.0 platform. The company also added 1 client in the $100 million category and 3 in the $50 million category, reflecting strong client mining.

Software Business Momentum and Strategic Acquisitions

The HCLSoftware business delivered strong performance, growing 28.1% QoQ and 3.1% YoY in constant currency, with annual recurring revenue at $1.07 billion. This growth was fueled by seasonality and strong traction in its data intelligence portfolio. HCLTech also announced the acquisition of Telco Solutions from HPE to enhance telecom engineering capabilities and Jaspersoft and Wobby to strengthen its Data and AI division's offerings, aiming for a unified end-to-end data and analytics platform.

Profitability and Margin Management

The operating margin, excluding the one-time impact of the new labor code, stood at 18.6%, an increase of 111 basis points QoQ. While restructuring costs impacted Q3 margins by 81 basis points, management expressed confidence in recovering future margins, expecting a similar impact in Q4 to conclude the exercise. The company's ROIC for the last 12 months improved to 39.4%, up 277 basis points YoY, reflecting a disciplined approach to profitability and capital management.

Raised Guidance and Shareholder Returns

HCLTech raised its full-year services revenue growth guidance to 4.75%-5.25% in constant currency and company-level guidance to 4%-4.5% in constant currency, while maintaining its EBIT margin guidance of 17%-18%. The Board declared an interim dividend of INR 12 per share, with a last 12 months payout of INR 54 per share, representing 88.8% of net income. This reflects confidence in sustained growth and commitment to shareholder returns.

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