Analyst Concall
Clients may rework deals, cut budgets, says HCL Tech mgmt
This story was originally published at 22:56 IST on 22 April 2025
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--HCL Tech: Jan-Mar revenue growth QoQ hit due to seasonality in HCLSoftware
--CONTEXT: HCL Tech management's comments at post-earnings analyst call
--HCL Tech: New deals balanced across verticals in Jan-Mar
--HCL Tech: Deal pipeline continues to be near all-time high
--HCL Tech: Global macro uncertainties may result in client budget cuts
--HCL Tech: Macro uncertainties may lead to price renegotiation by clients
--HCL Tech: FY26 sales view factors deterioration in global econ environment
--HCL Tech: Discretionary spending of clients likely to deteriorate
--HCL Tech: US tariffs could be first trigger for drop in discretionary spend
By Rajesh Gajra
NEW DELHI – Geopolitical factors like tariffs and de-globalisation are expected to impact IT (information technology) services as clients are seen cutting budgets, re-negotiating contracts and delaying signing off on new deals, the management of HCL Technologies Ltd. said Tuesday. In a post-earnings conference call with analysts and investors, the company's management said that going forward, discretionary spending of clients will likely deteriorate and the US tariffs could just be the first trigger for it.
Sensing such a deterioration in global macroeconomic environment, the tech major has guided for a revenue growth of 2-5% in constant currency terms for the current financial year--2025-26 (Apr-Mar)-- where the lower end factors in the likely outcome. "We believe the environment will deteriorate from where we are and that's what the coefficient represents, and obviously the midpoint also we assume that the environment will deteriorate, but it assumes that a couple of large deals" which are in the pipeline will likely close in Apr-Jun, the management said.
HCL Technologies' management said that while the lower end of the revenue guidance baked in the likely outcome of recession from the deteriorating macroeconomic conditions, it was also driven by the new deal wins in Jan-Mar, a bulk of which materialised in March. "We believe it's very important for clients to continue, and some of them may not really have an impact due to tariffs. So we feel confident of the ramp-up of the Q4 (Jan-Mar) bookings," the management said.
The management said it was pleased with the fact that the deal pipeline continued to be at an all-time high for the second consecutive quarter, and said that the new deal wins in Jan-Mar were balanced across verticals. "A couple of deals that stand out in engineering services include a US-based global high-tech company selected us for a mega engineering services deal to serve the rapidly growing AI-powered silicon and software-defined vehicle segment," the management said.
In deal wins in the AI (artificial intelligence) space, the company's management said that "Carrix, the world's largest independent marine and rail terminal operator, selected us to improve its global port operations with our advanced suite of AI engineering and AI offerings." The management said it expected the current June quarter will be better than what it was in the same quarter a year ago, "but we will have a usual seasonality again playing out."
Commenting on the revenue and margins performance of the company in the March quarter HCL Tech's management said that seasonality in software business was behind the 0.8% revenue decline sequentially in constant currency terms. The profitability of the company fell sharply in the March quarter with the EBIT margin contracting by 160 basis points to 17.9% from 19.5% in the previous quarter. The management said the software business seasonality "caused 124-basis-point drop in margins at the company level."
The second cycle of salary increments which took place in the March quarter caused the margin to drop by 38 basis points quarter-on-quarter, but foreign exchange gains had a positive impact of 46 basis points. The balance drop in margin, according to the management, was due to investment in sales and marketing, the management said.
In the March quarter, HCL Tech's consolidated revenue from operations increased 1.2% sequentially to INR 302.46 billion, while the net profit declined 6.2% to INR 43.07 billion. On Tuesday, shares of HCL Tech closed 0.1% down at INR 1,479.90 rupees on the National Stock Exchange of India. End
Edited by Deepshikha Bhardwaj
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