HCLTech Q1 2025 Earnings Report: Margin Decline Amid Client Bankruptcy

HCLTech, a leading global IT services provider, has reported its fiscal first quarter earnings for the financial year 2025, revealing a profit of INR 3,843 crore, representing a 9.73% decline from the preceding year’s INR 4,257 crore. This financial report, released on July 14, 2025, highlights significant challenges faced by the company, including a 20 basis points (bps) impact on margins attributed to the bankruptcy of a key client, and a downward revision of revenue guidance due to delays in signing new contracts.

In a statement, C. Vijayakumar, CEO and Managing Director of HCLTech, attributed the margin compression primarily to lower utilization rates and substantial investments in Generative AI and Go-To-Market (GTM) strategies. He noted, "Our operating margin came at 16.3%, impacted by lower utilization and additional Gen AI and GTM investments. Our AI propositions are resonating well with our clients and have been augmented further by our partnership with OpenAI." This partnership aims to enhance HCLTech's AI capabilities, which are seen as crucial for driving future growth.

The company reported operational revenue of INR 30,349 crore for the quarter, reflecting a modest growth of 0.3% quarter-on-quarter (QoQ) and an 8.2% year-on-year (YoY) increase. HCLTech has revised its revenue growth guidance for FY26 to between 3.0% and 5.0% in constant currency. This adjustment comes as the firm grapples with ongoing macroeconomic uncertainties that have led to subdued spending in the IT sector, particularly in the automotive and manufacturing verticals, as expressed by Vijayakumar.

Analysts have indicated that the overall IT landscape is experiencing a slowdown in spending, which is reflected in HCLTech's total contract value (TCV) for new deals, which fell to $1,812 million in Q1 FY26, down 7.5% from $1,960 million in the same quarter last year and a significant 39.5% decline from the previous quarter's $2,995 million. Biswajit Maity, Senior Principal Analyst at Gartner, commented on the broader market, stating, "In Q2 2025, global markets experienced a slowdown in net-new spending as macroeconomic uncertainties impacted several regions. However, HCLTech's performance in securing major contracts and a robust deal pipeline provided some resilience against these trends."

The financial report also detailed that HCLTech's EBIT (Earnings Before Interest and Taxes) margin is projected to remain between 17.0% and 18.0% for the fiscal year. The restructuring program, aimed at improving EBIT margins, is anticipated to yield results from Q2 onwards. Despite the challenges, the company reported nine renewals in the current quarter, which may bolster future performance.

Roshni Nadar Malhotra, Chairperson of HCLTech, emphasized the company’s commitment to ethical AI deployment, stating, "AI has become integral to the business growth of global enterprises. Our capabilities and strategic partnerships ensure our AI-led solutions are practical and significant value creators to our clients."

Looking ahead, HCLTech remains cautious yet optimistic about its growth trajectory. The company expects continued investment in AI and digital transformation to drive future revenue streams. The ongoing economic volatility, however, necessitates a close watch on market conditions, particularly concerning discretionary spending and macroeconomic factors that may influence client budgets.

In conclusion, HCLTech’s Q1 FY26 results illustrate the complexities of navigating an uncertain economic landscape while striving for innovation and client satisfaction. As the company adapts to these challenges, its strategic focus on AI and digital solutions could prove vital for its long-term success in the competitive IT services market.