HCL Tech Q1 Results Preview: Modest revenue growth seen; margins may come under pressure
Over the past few quarters, clients of Indian IT services companies have been cutting their tech budgets due to global economic uncertainty, particularly in the US and Europe. Many large enterprises are prioritising cost optimisation, leading to an increase in cost take-out deals, vendor consolidation, and reductions in headcount-related expenses.
Analysts expect the BFSI, hi-Tech, and healthcare services sectors to show some recovery, while manufacturing and retail are likely to remain subdued.
Against this backdrop, HCL Technologies is expected to report a modest performance in Q1FY26. Both investors and analysts will closely monitor management commentary around FY26 guidance, client decision-making trends, the deal pipeline, discretionary spending, margin trajectory, hiring outlook, and the products business.
Analysts at Choice Institutional Equities expect HCL Technologies to deliver a muted Q1FY26 performance, with constant currency revenue likely to decline by 0.7% sequentially. However, a favourable cross-currency movement—estimated at 200 basis points—is expected to lift USD-reported revenue by around 1.3% quarter-on-quarter.
The brokerage expects the BFSI (banking, financial services, and insurance) vertical to outperform other segments such as manufacturing, retail, and telecom, while the engineering and R&D (ER&D) business may see some softness. It expects margins to remain largely stable, with EBIT margins projected to decline slightly by 10 basis points to 17.8%, primarily due to subdued revenue growth.
Global brokerage firm HSBC expects seasonally lower revenues for the products business and marginal growth for the IT & ERD services business. On a Q-o-Q basis, it expects the positive impact of CC to more than offset the seasonal decline in the business. Expect USD revenue growth to be 0.5% QoQ and 4.5% YoY.
"Operating margins are expected to fall by 80 basis points due to the impact of lower utilization, lower share of revenues from high-margin software business, and some adverse impact of currency," said the brokerage. The brokerage expects net profit to come in at ₹ 4,135 crore, reflecting a 3.6% sequential decline and remaining flat on a year-on-year basis.
Meanwhile, Axis Securities projects HCL Tech to post a 0.3% quarter-on-quarter revenue growth, led by continued weakness in the services business. It expects operating margins to contract by 44 basis points. Net profit is estimated at ₹ 4,279 crore, marking a 0.7% QoQ decline but a modest 0.5% improvement on a YoY basis.
Antique Stock Broking expects HCL Technologies to maintain its FY26 revenue growth guidance at 0%–3% and 2%–5% in constant currency terms. However, the brokerage anticipates a decline in margins due to the lack of growth momentum.
HCL Technologies shares opened lower on Monday, hitting a four-week low of ₹ 1,616.70 apiece in early trade as the stock extended its losing streak for the fourth consecutive session, resulting in a 6.7% decline so far this month.
According to global brokerage firm HSBC, while HCL Tech has shown strong performance in recent years—particularly gaining market share in the Application Development and Maintenance (ADM) space—its current valuations appear stretched.
The brokerage expects medium- to long-term, revenue CAGR in USD terms could be mid-single digits, and including INR depreciation and dividend yield, the total upside could be in the range of 10-12%.
HSBC has raised its target price to ₹ 1,730 (from ₹ 1,650), based on a higher target P/E multiple of 26x FY26 estimated EPS. However, the firm maintains a 'Hold' rating, citing limited upside from current levels and noting that the company's growth trajectory is only in line with peers despite richer valuations compared to TCS and Infosys.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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