HCL Technologies Shares Drop 4% as Q1FY26 Margins, Profits Decline

On Tuesday, HCL Technologies share price down 4.3 percent touching a day’s low price of Rs. 1,550 on NSE after delivering a mixed performance in its Q1FY26 results, reflecting strong revenue growth but notable margin pressures. The company reported consolidated revenue of Rs. 30,349 crore, up 0.3 percent sequentially and 8.2 percent year-on-year. In US dollar terms, revenue reached $3,545 million, marking a 1.3 percent quarter-on-quarter and 5.4 percent year-on-year increase. However, in constant currency, revenue actually dipped 0.8 percent sequentially but still rose 3.7 percent over the previous year. Despite the top-line growth, HCLTech’s net profit dropped sharply to Rs. 3,843 crore, down 10.8 percent quarter-on-quarter and 9.7 percent year-on-year. The operating profit (EBIT) stood at Rs. 4,942 crore, with the EBIT margin contracting to 16.3 percent. The net income margin also fell to 12.7 percent from 15.17 percent year on year, highlighting the margin squeeze.

Digital services continued to drive HCLTech’s growth, with digital revenue rising 15.2 percent year-on-year in constant currency and now contributing 41.6 percent to total services revenue. In contrast, HCLSoftware revenue slipped 3 percent year-on-year in constant currency, although annual recurring revenue (ARR) for the segment still grew 1.3 percent to $1.06 billion. The company’s return on invested capital (ROIC) improved to 38.1 percent on a trailing twelve-month basis, with the services segment ROIC at a robust 45.2 percent. However, the Total Contract Value (TCV) of new deal wins came in at $1,812 million, down 8.1 percent year-on-year, primarily due to deal closures being pushed into the next quarter. Management expressed confidence that these deals have since closed and expect TCV to rebound in Q2. HCLTech also announced an interim dividend of Rs. 12 per share, with a record date of July 18, 2025, underscoring its commitment to shareholder returns.

Management addressed the margin pressures caused by lower utilisation rates and increased investments in generative AI, go-to-market initiatives, and restructuring costs. As a result, HCLTech lowered its EBIT margin guidance for FY26 to 17 percent to 18 percent from the earlier 18 percent to 19 percent. As per sources, the company raised the lower end of its FY26 constant currency revenue growth guidance to 3 percent to 5 percent compared to 2 percent to 5 percent, reflecting confidence in deal increases and a stable demand environment. The leadership highlighted their focus on AI-led solutions, ethical AI deployment, and strategic partnerships, including a notable collaboration with OpenAI, as key growth drivers.

Brokerage firms responded to HCLTech’s Q1FY26 results with a mix of caution and optimism. Nuvama Institutional Equities downgraded the stock to ‘hold’ and reduced the target price to Rs. 1,630, citing weak margins and limited earnings growth potential for FY26, while noting that HCLTech now trades at a slight premium to TCS and Infosys. Citi Research maintained a ‘neutral’ stance with a target of Rs. 1,650, describing the quarter as mixed but noting no significant deterioration in demand. CLSA remained more optimistic, keeping an ‘outperform’ rating with a target of Rs. 1,867, expecting margin recovery to 18 percent to 19 percent by FY27. Jefferies upgraded HCLTech to ‘buy’ with a target of Rs. 1,850, citing the raised revenue growth guidance and expectations of superior growth and premium valuation. Nomura cut its target to Rs. 1,810 but acknowledged HCLTech’s industry-leading revenue growth and anticipated margin improvement in the medium term.