HCLTech Reports Steady Growth Amid Restructuring Costs
HCLTech, one of India’s leading IT services firms, has released its financial results for the second quarter, revealing a net profit that remained flat compared to the previous year. Despite this, the company reported a notable revenue increase, surpassing analyst expectations. This performance comes at a time when the IT sector is navigating challenges related to restructuring and evolving market demands.
Financial Overview
For the quarter ending September 30, HCLTech reported a net profit of ₹4,235 crore, with revenues reaching ₹31,942 crore. These figures reflect a year-on-year revenue growth of 10.7%, while the net profit showed a sequential increase of 10.2%. Analysts had predicted a net profit range between ₹4,136 crore and ₹4,491 crore, and revenue expectations were set between ₹31,252 crore and ₹31,603 crore, according to a poll conducted by the Economic Times.
AI Revenue Milestone
In a groundbreaking achievement for Indian IT firms, HCLTech reported standalone quarterly revenue of $100 million (approximately ₹886 crore) from artificial intelligence (AI) services. Although AI currently constitutes less than 3% of the company’s total revenue, CEO C. Vijayakumar expressed optimism about its growth potential. He noted that there is a significant demand for AI solutions across various sectors, including factory requirements and silicon design.
Vijayakumar stated, “A lot of discretionary spending is happening on AI because customers have invested in solutions and capabilities, and they really want to make them work and scale within their enterprise.” This sentiment underscores the increasing importance of AI in the IT landscape, as companies seek to leverage technology for operational efficiency.
Sector Performance and Challenges
HCLTech’s revenue growth was bolstered by robust performance in engineering, research, and development (ER&D) services, which saw an increase of over 13%. Additionally, revenue from Europe rose by more than 7%, and the financial services and technology sectors experienced double-digit growth. However, the software business faced challenges, with a 3.7% decline in revenue year-on-year in constant currency terms, a metric that excludes currency fluctuations.
Vijayakumar acknowledged the mixed demand environment, stating, “Overall, the demand environment is more or less similar to what we saw in the last quarter… The only area which is soft is the auto segment, which we feel is still struggling, but for all others, we feel good.”
Revised Growth Projections
In light of a 44% increase in deal bookings, HCLTech has revised its services revenue growth guidance to 4-5%, up from the previous estimate of 3-5%. The company has maintained its overall revenue growth outlook of 3-5% in constant currency for the fiscal year ending March 2026. This optimistic outlook is supported by a sequential revenue increase of 2.4% and a year-on-year rise of 4.6%, amounting to $3.6 billion.
Workforce Dynamics
While HCLTech did not explicitly mention any employee reductions, Chief People Officer Ramachandran Sundarajan addressed workforce dynamics, emphasizing that the company is focused on skill-location mismatches rather than a capacity reduction agenda. He noted that the company added 3,489 employees during the quarter, reversing a net reduction of 269 employees in the previous quarter. This brings HCLTech’s total workforce to 226,640, with a significant intake of fresh graduates.
Sundarajan remarked, “Our fresher intake this year is going to be significantly higher than what we did last year,” indicating a commitment to nurturing new talent in the industry.
Dividend Declaration and Market Response
In a show of confidence, HCLTech’s board declared an interim dividend of ₹12 per share for the fiscal year, with a payment date set for October 28. However, ahead of the earnings announcement, HCLTech shares closed slightly lower at ₹1,494 on the Bombay Stock Exchange, reflecting a broader market trend where the benchmark Sensex also ended down by 0.2%.
Competitive Landscape
HCLTech’s performance comes in the wake of its largest competitor, Tata Consultancy Services (TCS), which reported weaker-than-expected earnings last week. TCS experienced a 1.4% decline in net profit year-on-year and a 5.4% drop sequentially, largely due to a one-time restructuring fee. The company also laid off 1% of its workforce, marking its largest quarterly headcount reduction.
Operating Margins and Future Outlook
HCLTech’s operating margin improved to 17.5%, up from 16.3% in the previous quarter, although it narrowed from 18.6% a year ago due to restructuring impacts. The company has maintained its margin outlook of 17-18% for the fiscal year. Analysts, including Biswajit Maity from Gartner, have noted that while Indian IT firms are aggressively pursuing large deals, margin pressures are likely to persist due to competitive pricing and wage inflation.
Maity commented, “Disclosing AI-specific revenue enhances transparency, demonstrates the company’s confidence in AI as a strategic growth driver, and differentiates it from competitors who have yet to quantify their AI business impact.” This trend of reporting AI revenues is expected to gain traction across the industry, as firms recognize the importance of AI in shaping future growth.
Conclusion
HCLTech’s latest financial results reflect a complex landscape for the IT services sector, characterized by both growth opportunities and challenges. The company’s strategic focus on AI and its commitment to workforce development position it well for future success. As the industry continues to evolve, HCLTech’s ability to adapt to changing market dynamics will be crucial in maintaining its competitive edge.
