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HCL Technologies Ltd

| Q4 & Annual FY26 Earnings Conference Call

NEUTRAL SENTIMENT

Report Source

⬤24th Apr 26

Summary : HCLTech navigates an uncertain market with modest FY27 guidance, driven by strong AI focus and resilient services growth despite client-specific headwinds.

Management Perspective neutral : Management acknowledges current market uncertainties and specific client challenges impacting Q4 and FY27 guidance, while emphasizing the company's resilience and strong strategic focus on AI for future growth.

Concall Report Analysis & Insights

Business Overview

  1. Q4 revenue was $3.7 billion, a 3.3% QoQ decline and 2.4% YoY increase in constant currency.
  2. FY26 consolidated revenue reached $14.7 billion, growing 3.9% YoY in constant currency.
  3. Services business grew 4.8% in FY26, while software revenue declined 4.1% YoY.
  4. Q4 operating margin was 16.5%, or 17.7% excluding restructuring costs.
  5. Annualized Advanced AI revenue reached $620 million, with 6.1% QoQ growth in Q4.

Future Growth Prospects

  1. Strong AI momentum with nearly all deals incorporating AI or GenAI components.
  2. AI strategy focuses on service transformation, differentiated IP, new AI-led services, and partnerships.
  3. Expanding AI partnerships with Google Gemini, AWS, NVIDIA, and OpenAI.
  4. Investing in AI talent, with 135,000 employees trained in GenAI technologies.
  5. Expects AI native services to grow in the 25% to 30% range.

Management Insights

  1. HCLTech was named to Fortune's World's Most Admired Companies 2026 list.
  2. FY26 marks the third consecutive year of likely highest organic revenue growth among scale players.
  3. Q4 performance was impacted by software seasonality and delayed client decisions.
  4. FY26 operating margin was 17.2%, a 107 basis points dip YoY.
  5. FY27 revenue growth guidance is 1% to 4% in constant currency for the full year.

Signs of Skepticism

  1. Management attributed software revenue decline partly to 'client stakeholder changes' and 'more review of deals', which is somewhat vague.
  2. The full extent of AI deflationary impact on TCV and specific long-term mitigation strategies beyond 'reinventing' could be clearer.

Risk Factors

  1. Uncertain outlook and persistent tariff volatility impacted FY26 performance.
  2. Discretionary spending contracted in traditional areas, affecting revenue.
  3. Delay in procurement decisions in March led to Q4 revenue below expectations.
  4. Reduction in discretionary spending by two large US Telecom clients will continue to impact.
  5. Discontinuation of two SAP programs also contributed to revenue impact.

Good To Know

  1. HCL Group celebrates 50 years of building, reinventing, and leading.
  2. Released Responsible AI Transparency Report, first among GSIs.
  3. Acquired Finergic Solutions to enhance Financial Services portfolio and Wobby for data intelligence AI.
  4. HCLTech is the only service provider rated Customer's Choice across all six Gartner IT services assessments.
  5. Capital allocation policy extended for another 5 years, committing to return 75% of Net Income to shareholders.

Key Drivers

  1. Strong AI strategy and adoption.
  2. New AI-led service offerings.
  3. Expanded AI partnerships.
  4. Robust client additions.

Key Analyst Discussions

Competitive Environment

  1. Analyst asked if AI deflation impact is similar to traditional productivity cuts in renewal deals.
  2. Questioned if the current low to mid-single digit growth is equivalent to high single digits due to AI deflation.

Market Trends & Consumer Behavior

  1. Analyst inquired about the portion of guidance softness from geopolitical pressures versus recent events.
  2. Questioned if the two client-specific issues are isolated or indicate broader vertical/geography trends.
  3. Asked about the impact of West Asia situation and US government delays on software deal closures.

Financial Highlights

  1. Analyst questioned the risk of AI deflation expanding beyond 3-5% over 2-3 years.
  2. Clarification sought on whether SAP programs and Telecom account issues are separate events.
  3. Questioned if Q1 seasonality would be higher due to Q4 headwinds continuing.
  4. Asked about the long-term trajectory of the software business given Q4 decline.

Product Composition

  1. Analyst asked which of the five AI offerings are seeing maximum uptake for over-indexing.
  2. Questioned the growth trajectory of data, operations, and experience portfolios within software business.

Strategic Considerations

  1. Analyst asked about the scope of work with hyperscalers for infrastructure managed services.
  2. Inquired about the company's strategy for new product launches in the software business.