HCL Technologies Ltd., a provider of software and IT infrastructure services, in its Q3 earnings call discussed about anticipating Q4 softness due to a major transformation project concluding, with agentic AI adoption gaining momentum, driven by cost-efficiency and modernization needs, while discretionary spending improving across most verticals except healthcare and public services. The company also commented that growth is becoming more diversified beyond the top five clients, with strong performance in retail, CPG, and ER&D sectors, particularly in telecom and tech. HCLTech addressed that it maintains strong localization in the U.S. with 80% local hires, reducing H-1B visa dependency, while software margins benefited from reduced costs and lower amortization.
HCLTech, India’s third-largest IT services company, demonstrated robust performance with consolidated net profit up 5.6% year-over-year and revenue up 5.08% year-over-year, though both metrics slightly missed analyst estimates. The company raised its FY25 revenue growth guidance to 4.5-5% from 3.5-5%, supported by strong regional performance in North America, and Europe, with the Telecommunications sector leading at 33% year-over-year growth and BFSI showing recovery signs. Notable achievements included record deal bookings of $2.1 billion, highest-ever EBIT of INR5,821 crore with margins at 19.5%, and a substantial cash balance of INR27,707 crore. The workforce expanded with 2,134 new employees, including 2,014 freshers, bringing total headcount to 220,755, though attrition slightly increased to 13.2%.
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Financial/Operational Metrics:
- Revenue from Operations: INR29,890 crore, up 5.08% YoY.
- Net Profit: INR4,594 crore, up 5.6% YoY.
- EBIT: INR5821 crore, up 3.7% YoY.
- EBIT Margin: 19.5%, down 25 bps YoY.
- Diluted EPS: INR16.93, up 5.61% YoY.
- LTM Attrition Rate: 13.2%, up from 12.8% YoY.
FY25 Outlook:
- Revenue Growth: 4.5-5.0% YoY in constant currency.
- Services Revenue Growth: 4.5-5.0% YoY in constant currency.
- EBIT Margin: 18.0- 19.0%.
- Strategic Investments: Expansion in AI and GenAI solutions and Strengthening partnerships with SAP, ServiceNow, and hyperscalers.
Analyst Crossfire:
- Revenue Guidance & Discretionary Spending (Ankur Rudra – J.P. Morgan): Q4 guidance reflects a decline at the midpoint due to a completed transformation program and delays in ramping discretionary deals. Smaller deals are converting faster, contributing positively to ACV growth (Shiv Walia – CFO).
- Annual Outlook & Agentic AI Impact (Ankur Rudra – J.P. Morgan)? Despite Q4 softness, the pipeline remains strong. FY ’26 guidance will be provided in April, but the upcoming quarters are expected to deliver steady growth excluding one-off impacts. Adoption of Agentic AI is accelerating due to cost-efficiency from smaller models. GenAI is driving legacy modernization and cloud adoption, with strong growth in data pipelines and bookings (Shiv Walia – CFO, C. Vijayakumar – CEO).
- BFSI & Environmental Factors, Manufacturing & Automotive Sector (Abhinav Ganeshan – SBI Pension Funds, Vibhor Singhal – Nuvama Equities): No immediate impact from California forest fires on BFSI clients. Business remains robust with nationwide insurers. Non-automotive manufacturing shows strong demand, driven by SAP-led projects. Automotive remains weak, but transformative deals may emerge in a few quarters (Shiv Walia – CFO, C. Vijayakumar – CEO).
- Retail & CPG Growth, Client Concentration (Vibhor Singhal – Nuvama Equities, Rishi Jhunjhunwala – IIFL): Strong sequential growth in the US market due to a major transformation project. While Q4 will see a dip as the project concludes, the pipeline remains strong. Growth is concentrated among top five clients but adjusting for one-offs reveals broader growth across verticals and non-top clients (C. Vijayakumar – CEO).
- Telecom Deal Runoff & Seasonal Impact (Kumar Rakesh – BNP Paribas, Sandeep Shah – Equirus Securities): The planned rundown of a mega telecom deal will primarily affect Q4, with minimal impact in Q1 FY ’26. Seasonal softness is expected in Q1 FY ’26, but previous BFSI offshoring and discretionary spending reductions are unlikely to recur (C. Vijayakumar – CEO).
- M&A Impact & Client Spending Outlook (Sandeep Shah – Equirus Securities, Nitin Padmanabhan – Investec): M&A-related integration costs in Q3 will normalize in Q4, with recurring amortization expenses continuing. Following moderation in pandemic-era overspending, client budgets are refocusing on modernization, cloud migration, and app transformation (Shiv Walia – CFO, C. Vijayakumar – CEO).
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