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    HCL Technologies

    HCLTECH
    Information Technology·14 Jul 2025
    Management Summary

    HCL Technologies reported a mixed Q1 FY26, with robust year-on-year revenue growth driven by strong performance in Services, particularly Engineering and R&D. However, profitability was impacted by seasonal factors, lower utilization, a client bankruptcy, and strategic investments in AI. The company remains optimistic about future growth, supported by a strong pipeline and an improving demand environment in key verticals like Financial Services and Technology, while acknowledging pressures in others.

    Highlights

    8

    • Total revenue reached $3,545 million, marking a 3.7% year-on-year growth in constant currency, despite a 0.8% sequential decline.

    • Operating margin stood at 16.3%, lower than planned due to utilization drops, a one-off client bankruptcy impact, and accelerated AI investments.

    • Services business grew 4.5% year-on-year in constant currency, with Engineering and R&D Services leading at 11.8% growth.

    • HCL Software revenue declined 3% year-on-year, but Annual Recurring Revenue (ARR) increased 1.3% to $1.06 billion.

    • Net new bookings for the quarter were $1.8 billion, with expectations for a step-up in TCV next quarter.

    • The company reported an LTM revenue milestone of over $14 billion and LTM diluted EPS of Rs. 62.57, up 3.4% year-on-year.

    • Strong cash generation with LTM operating cash flow at $2.57 billion and free cash flow at $2.42 billion.

    • Interim dividend declared at Rs. 12 per share, contributing to an LTM payout of Rs. 60 per share (95.8% of net income).

    Guidance & targets

    5
    CategoryTargetPriority
    Revenue
    Revenue Growth (Constant Currency)
    3% to 5%
    		High
    Profitability
    EBIT Margin
    17% to 18%
    		High
    Profitability
    EBIT Margin (Normalized)
    19%-20%
    		Medium
    Profitability
    SG&A percentage
    normalize (back to previous levels)
    		Medium
    Bookings
    TCV (Total Contract Value)
    step-up
    		Medium
    2 min read

    Detailed Narrative

    HCL Technologies commenced FY26 with a robust revenue performance in Q1, reporting $3,545 million, a 3.7% year-on-year increase in constant currency. This growth was achieved despite a sequential decline of 0.8%, which management attributed to historical Q1 seasonality. The Services business was a key driver, expanding by 4.5% year-on-year, with Engineering and R&D Services notably growing 11.8%. While HCL Software experienced a 3% year-on-year decline, its Annual Recurring Revenue (ARR) showed a positive trend, increasing 1.3% to $1.06 billion. Geographically, Europe and Rest of the World demonstrated strong growth at 9.6% and 15% respectively, offsetting a more modest 0.5% growth in the USA.

    Profitability, however, faced headwinds, with the operating margin coming in at 16.3%, below the company's plan. This 161 basis points sequential drop was primarily due to three factors: a significant 80 basis points impact from lower utilization (resulting from capacity building for specialized skills, slower ramp-up of a large deal, and ramp-downs in areas like automotive), a 30 basis points impact from a one-off📎 client bankruptcy, and continued strategic investments in AI and go-to-market capabilities. Despite these challenges, the company emphasized that it did not cut back on investments crucial for long-term growth. Cash generation remained strong, with LTM operating cash flow at $2.57 billion and free cash flow at $2.42 billion, translating to impressive conversion rates of 129% and 121% of net income, respectively. The company also declared an interim dividend of Rs. 12 per share.

    In terms of bookings, HCL Technologies secured net new bookings of $1.8 billion. Management noted that two large deals expected to close in Q1 were procedurally delayed to Q2, and a significant vendor consolidation opportunity in Financial Services was not included in the reported TCV due to its time-and-material based construct. Despite these timing issues, the pipeline remains strong, particularly in Digital business and AI-led propositions. The company is actively investing in an AI-driven data lifecycle management platform and seeing healthy demand for efficiency-led deals. Discretionary spending shows promise in Financial Services and Technology, while Manufacturing, Retail, CPG, and Life Sciences face some stress.

    Looking ahead, HCL Technologies revised its FY26 revenue guidance upwards to 3% to 5% in constant currency, reflecting confidence from Q1 performance and the outlook for the coming quarters. Concurrently, the EBIT margin guidance for FY26 was adjusted to 17% to 18%, acknowledging the Q1 impacts and ongoing investments. Management reiterated a long-term normalized EBIT margin target of 19% to 20%, with expectations for margins to improve in FY27 as SG&A normalizes. The company is also undertaking a restructuring program to enhance structural agility, with associated one-time📎 costs factored into the FY26 margin guidance. Strategic partnerships, notably with OpenAI, UiPath, Google Cloud, and NVIDIA, underscore HCLTech's commitment to building a comprehensive AI ecosystem and driving large-scale enterprise AI transformation.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.