HCL Tech Q1 Earnings Preview: Profit growth may be muted; guidance, deal TCV, pipeline to be in focus

HCLTech Q1 FY26 earnings preview: Analysts anticipate subdued profit growth due to weak discretionary spending. Guidance, deal wins, and pipeline visibility to be key investor focus.

Jul 12, 2025 - 19:47
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HCL Tech Q1 Earnings Preview: Profit growth may be muted; guidance, deal TCV, pipeline to be in focus
HCLTech Q1 FY26 earnings preview: Analysts anticipate subdued profit growth due to weak discretionary spending. Guidance, deal wins, and pipeline visibility to be key investor focus.

As HCL Technologies prepares to release its Q1 FY26 results on July 12, market analysts anticipate subdued profit growth in the backdrop of a sluggish global IT spending environment. While the company’s robust deal pipeline and long-term digital transformation themes remain intact, near-term concerns around client discretion and project deferrals could weigh on earnings.

The spotlight for this earnings season will largely be on management commentary, deal wins (TCV), margin trajectory, and FY26 guidance updates.


Revenue Growth Likely Steady, But Profit May Face Margin Pressures

According to consensus estimates, HCLTech’s revenue for the April-June 2025 quarter is expected to grow modestly in the range of 1.5%–2.5% quarter-on-quarter (QoQ) in constant currency (CC) terms, supported by recent large deals and steady traction in engineering and cloud services. However, net profit growth is likely to remain muted due to pressure on operating margins from wage hikes and elevated employee costs.

“We expect HCLTech to post a CC revenue growth of around 2% QoQ. The seasonal softness in product and platform business and potential furlough impact may have a bearing on profitability,” said an analyst from ICICI Securities.

EBIT margins are anticipated to compress by 50–70 basis points QoQ, largely reflecting annual wage revisions rolled out in April, and higher subcontracting costs.


Key Metrics to Watch: Deal TCV, Pipeline, and FY26 Guidance

One of the critical areas of focus will be HCLTech’s Total Contract Value (TCV) for deals signed during Q1. In Q4 FY25, HCLTech had posted a solid $2.85 billion in new deal wins. Market participants expect the company to at least maintain, if not exceed, this level in Q1.

“We believe deal wins and pipeline commentary will be closely watched as they offer a forward-looking view in an otherwise muted operating quarter,” noted Motilal Oswal in a pre-results report.

HCLTech had earlier guided for FY26 revenue growth of 3-5% in constant currency terms and EBIT margin in the range of 18-19%. Any changes in this outlook during the earnings call could significantly influence stock sentiment, especially given the current volatility in global IT demand.


Vertical Commentary: BFSI and Telecom Remain Weak; Engineering a Bright Spot

From a vertical perspective, analysts expect continued pressure in BFSI (banking, financial services, and insurance) and telecom segments due to client-side budget tightening and delayed decision-making cycles. However, the engineering and R&D services segment, where HCLTech holds a strong position, is expected to remain a bright spot.

“HCLTech has been seeing good momentum in engineering and cloud transformation deals. These segments could cushion the slowdown in traditional IT services,” said an Edelweiss Securities analyst.

Geographically, the US and Europe may show low-single-digit growth, but uncertainty in the macro environment continues to weigh on client spending sentiment.


Stock Performance and Valuation Ahead of Earnings

HCLTech’s stock has delivered a muted performance in recent weeks, underperforming the Nifty IT index. As of July 11, the stock is up roughly 8% year-to-date, compared to over 14% gains in TCS and 10% in Infosys.

With the IT sector remaining under a shadow of caution due to weak discretionary spending, investors are treading carefully. However, HCLTech’s relatively attractive valuation (trading at around 22x FY26 EPS) and stable large-deal wins offer a degree of downside protection.

“The stock offers a good risk-reward if Q1 margins hold up and deal wins continue to show momentum. Investors should watch for management guidance closely,” said Prabhudas Lilladher in its earnings preview note.

Investor Outlook: Stability Over Growth in the Near Term

In the current macro environment, investors are likely to reward IT companies that demonstrate deal resilience and margin discipline. HCLTech’s Q1 performance, while expected to be moderate, could serve as a litmus test for its ability to navigate a weak demand phase while preserving profitability.

For long-term investors, a robust commentary on the deal pipeline, clarity on FY26 growth levers, and potential capex plans in emerging technologies like GenAI and CloudOps could offer reasons to stay optimistic.

“We believe the long-term digital transformation opportunity remains intact. Near-term caution should not overshadow the company’s structural strengths,” said an analyst at JM Financial.


HCL Technologies enters Q1 FY26 earnings season amidst a challenging global IT environment. While profit growth may be subdued due to margin headwinds, the market will closely track deal momentum, guidance revision, and pipeline commentary to gauge the company's medium-term outlook. For investors, patience and a keen eye on strategic updates during the earnings call may hold the key to evaluating HCLTech’s resilience and future growth trajectory.

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