HCLTech Stock Dips on Reduced Annual Operating Margin Forecast

Market News

HCLTech stock slipped nearly 4.3% on July 15, 2025. The drop came right after the company cut its operating margin forecast for the year. That news caught the market’s attention. While revenue numbers looked solid, profits took a hit.

We’re seeing a shift in how HCLTech balances growth and cost. In its first-quarter report, the IT giant posted an 8.2% rise in revenue. But at the same time, net profit fell by almost 10%. What stood out even more was the trimmed margin guidance, from 18–19% to 17–18% for FY26.

This change sparked a sharp market reaction. Analysts adjusted their models. Investors responded quickly. The numbers told a clear story: demand is steady, but rising costs and one-off issues are squeezing margins.

Let’s break down what’s behind this move, how the market reacted, and what the latest figures say about HCLTech’s path forward.

Stock Performance and Market Reaction

On the NSE and BSE, HCLTech became the top loser in both the Nifty 50 and Nifty IT indices, plummeting intraday as much as 4.3%.

  • Eight brokerages cut their price targets.
  • Six downgraded the stock.
  • The consensus rating across 41 analysts is now “hold”.

Q1 FY26 Financial Results

HCLTech posted mixed quarterly results:

  • Revenue rose 8.16% YoY to ₹303.49 billion (≈ $3.53 billion).
  • Net profit dropped 9.7% YoY to ₹38.43 billion ($447 million).
  • Operating margin fell to 16.3%, down 80 bps from the prior quarter.
  • Bookings dropped to $1.81 billion from $1.96 billion a year ago.

Factors Behind the Margin Cut

Several challenges contributed to the margin squeeze:

  • Lower utilisation: Bench strength increased due to delays in ramp‑up.
  • Client bankruptcy: A U.S. client’s default shaved off around 20 bps.
  • Rising investments: AI and go‑to‑market spend added roughly 30 bps.
  • Restructuring costs: A facility and talent realignment plan abroad will affect near‑term margins.

Updated FY26 Guidance

HCLTech revised its full-year outlook:

  • Operating margin guided to 17–18%, down from 18–19%.
  • Constant currency revenue growth forecast was revised upward to 3–5%, compared to the earlier range of 2–5%.
  • Restructuring costs and investment trends are reflected in the updated guidance.

Analyst Revisions and Modeling

Following the update:

  • Several analysts, including Emkay Global and Antique Stock Broking, slashed margin expectations, calling the guidance downgrade a disappointment.
  • Brokerage models adjusted earnings-per-share estimates lower by about 3–5% for FY26.
  • Firms like Jefferies and Citi recalibrated valuation multiples in their DCF and P/E models.

Sector Context and Peer Comparison

  • India’s IT sector, valued at around $283 billion, faces pressure from U.S. tariffs. A May survey noted 40% of tech execs deferred discretionary projects.
  • Industry giant TCS also reported weaker margins, lending context to HCLTech’s margin drop.
  • Despite IT sector challenges, HCLTech continues to post above‑average revenue growth.

Operational Priorities and Strategic Investment

  • GenAI push: Enhanced partnerships, including with OpenAI, demonstrate focus on enterprise AI.
  • Cost control: Facility exits and talent pruning abroad aim to bolster margins over time.
  • Industry focus: Strong deal momentum in technology, telecom, and engineering verticals.
  • Annual recurring revenue from software increased by 1.3% compared to the same period last year.

Outlook for Upcoming Quarters

  • Management expects margins to stabilize near 17–18% in FY26 and edge upward by FY27.
  • Watch for Q2 developments: ramp‑ups, bookings, and restructuring impact.
  • Revenue growth remains healthy; the direction of margins will shape investor sentiment moving forward.

Conclusion

HCLTech’s Q1 results highlight the challenge of balancing rising costs with ongoing revenue growth. Revenue continues to trend upward, yet profitability faces near-term stress from utilization gaps, investments, and restructuring. We’ll evaluate how management navigates these headwinds in the quarters ahead.

FAQS:

What is the future prediction for HCLTECH stock?

HCLTech may grow slowly in the next year. Analysts expect steady revenue, but low profit margins could limit gains. It depends on cost control and deal growth.

Why is HCL dropping?

HCLTech stock dropped because the company lowered its profit forecast. High costs, client delays, and weak margins made investors worry about its future performance.

Is HCLTECH undervalued or overvalued?

Some experts think HCLTech is fairly valued now. It’s not too cheap or too costly. Its price depends on future profits and how well it controls expenses.

Disclaimer:

This content is for informational purposes only and not financial advice. Always conduct your research.