Release Date: July 14, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- HCL Technologies Ltd (BOM:532281, Financial) reported a year-on-year revenue increase of 3.7% in constant currency, driven by growth in several verticals including technology and services, telecom and media, retail and CPG, and financial services.
- The company saw strong geographical growth, with Europe growing by 9.6% and the rest of the world by 15% year-on-year.
- HCL Technologies Ltd (BOM:532281) added significant clients across various categories, including six in the $50 million category and 11 in the $20 million category year-on-year.
- The company announced strategic partnerships with OpenAI and other tech leaders to drive enterprise AI transformation, enhancing its AI capabilities and market positioning.
- HCL Technologies Ltd (BOM:532281) improved its revenue guidance for FY26 to 3% to 5% in constant currency, reflecting confidence in future growth prospects.
Negative Points
- The operating margin for the quarter was 16.3%, which was lower than planned due to factors such as reduced utilization, a client bankruptcy, and continued investments in AI and go-to-market capabilities.
- HCL Software experienced a weak quarter with a 3% year-on-year decline in revenue, although the annual recurring revenue showed a slight increase.
- The company faced challenges with utilization due to a mismatch in skills and location, impacting operating margins.
- There was a delay in closing some large deals, which moved from Q1 to Q2, affecting the total contract value (TCV) for the quarter.
- The company adjusted its EBIT margin guidance to 17% to 18% for FY26, down from previous expectations, due to unforeseen challenges and restructuring costs.
Q & A Highlights
Q: Are you expecting margins to return to the original range by the end of the year despite the current utilization mismatch?
A: Yes, we are not setting the structural margin bar lower. We expect margins to be between 17% and 18% this year due to current headwinds, but aim to return to the 19% to 20% range in the future. – C Vijayakumar, CEO and Managing Director
Q: Is the growth in the Hi-tech sector a sign of a cyclical recovery?
A: We are seeing strong demand in financial services and tech verticals. The growth in the tech vertical is broad-based, driven by a large deal in contact center transformation using conversational AI. We expect full ramp-up by the third quarter. – C Vijayakumar, CEO and Managing Director
Q: Why haven't we seen any margin uplift from Forex despite the rupee's depreciation?
A: While there was some gain in Europe, it was offset by the INR depreciation. Our cost base in India means that currency fluctuations in Europe and the UK have minimal impact on margins. – Shiv Walia, CFO
Q: How much of the margin guidance downgrade is due to one-off factors versus ongoing issues?
A: The full-year impact of the Q1 margin dip is 20 basis points. Higher sales and marketing investments will impact by 13 basis points, utilization issues by 10-20 basis points, and restructuring costs by 30-40 basis points. – Shiv Walia, CFO
Q: Will AI investments continue into FY27, and how will this affect margins?
A: We expect AI investments to normalize as growth catches up. By FY27, we aim to return to our desired SG&A percentage, with margins stabilizing. – C Vijayakumar, CEO and Managing Director
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
