Summary
HCL Technologies Ltd. - Q3 FY26 Earnings Call Summary Monday, January 12, 2026, 6:30 PM IST
Event Participants
Executives 3 C. Vijayakumar (CEO & MD), Nitin Mohta (SVP & Head - IR), Shiv Walia (CFO)
Analysts 5 Abhishek Pathak (Motilal Oswal), Manik Taneja (Axis Capital), Nitin Padmanabhan (Investec), Ravi Menon (Macquarie), Sandeep Shah (Equirus Securities), Sudheer Guntupalli (Kotak Mahindra AMC), Vibhor Singhal (Nuvama Equities)
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Revenue | $3.79 billion | +4.8% YoY, +4.2% QoQ in CC; crossed $15 billion annualized milestone. |
| Services Revenue | $3.38 billion | +5.0% YoY, +1.8% QoQ in CC; driven by engineering and ER&D momentum. |
| Software Revenue | $425 million | +3.1% YoY, +28.1% QoQ in CC; seasonal uptick aided by data intelligence traction. |
| EBIT Margin | 18.6% | -94 bps YoY, +111 bps QoQ; includes 81 bps restructuring cost, excludes one-time labor code impact. |
| Net New Bookings | $3.0 billion | +43% YoY, +17% QoQ; momentum driven by applications and engineering (63% of mix). |
| Net Income | $537 million | 14.2% of revenue; healthy conversion with OCF/NI at 127%. |
| LTM Attrition | 12.4% | -180 bps YoY; headcount stood at 226,379, remaining largely flat QoQ. |
| Cash Balance | $3.82 billion | Net cash at $3.55 billion; FCF generated during quarter was $2.35 billion. |
Geographic & Segment Commentary
- Engineering and R&D Services: Grew 10.8% YoY and 3.1% QoQ in CC. Strong performance driven by “Day-1” AI services involving custom silicon development for edge inferencing and physical AI.
- IT and Business Services: Grew 3.8% YoY and 1.5% QoQ in CC. Momentum underpinned by large-scale application modernization and AI-led service transformations.
- Geographies: India led growth at 15.8% YoY, followed by Rest of World at 22.1% YoY. US and Europe grew moderately at 1.5% and 4.6% YoY respectively.
- Verticals: Technology (+14.4% YoY) and Financial Services (+8.1% YoY) were the strongest performers. Manufacturing showed sequential recovery (+4.1% QoQ) despite macro uncertainties.
Company-Specific & Strategic Commentary
- AI Strategy Evolution: Advanced AI revenue grew 19.9%, led by Agentic physical AI and AI factory programs. AI Force 2.0 (Agentic platform) was a key differentiator in winning all four of the quarter’s largest deals.
- Strategic Acquisitions: Announced three acquisitions (Jaspersoft, Wobby, and HPE’s Telco Solutions) to bolster data intelligence and telecom engineering IP. Jaspersoft and Wobby will create a unified semantic AI layer for natural language analytics.
- Mega Deal Win: Secured a $473 million, 5-year engagement with a global apparel retailer for AI-led technology modernization and simplification of operating models.
- Project Ascend: Operational efficiency program contributed 104 bps to margin growth through higher utilization, offsetting wage hike impacts.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Services Revenue Growth | 4.75% – 5.25% (FY26) | Raised from previous range due to strong bookings and Q3 standout performance. |
| Total Revenue Growth | 4.0% – 4.5% (FY26) | Constant currency basis; excludes recently announced acquisitions. |
| EBIT Margin | 17.0% – 18.0% (FY26) | Guided range includes restructuring costs but excludes one-time labor code impact. |
| Q4 Restructuring | ~50 bps impact | Management expects a similar restructuring charge in Q4 to enter FY27 with a “clean slate.” |
Risks & Constraints
| Risk | Context |
|---|---|
| Discretionary Spend | Traditional discretionary spending remains slow/muted as clients pivot budgets toward AI-foundational infrastructure. |
| Regulatory / Labor Code | One-time impact from new labor code hit Q3 earnings; future recurring impact estimated at 10-20 bps depending on clarifications. |
| Manufacturing Volatility | Sector remains impacted by tariff uncertainties and mobility (Auto) shift challenges, though Aero/Defense provides a partial cushion. |
Q&A Highlights
AI Adoption Trends
- Question: How have AI conversations changed YoY? (Abhishek Pathak)
- Answer: Conversations have shifted from point solutions to holistic process reimagination. The “sweet spot” remains software development and data lifecycle management. “Day-1” services like custom silicon for edge inferencing and AI data center design are seeing immediate capex spend (C. Vijayakumar).
Margin Drivers & Restructuring
- Question: What is the status of restructuring charges and underlying profitability? (Vibhor Singhal)
- Answer: Excluding one-time restructuring (81 bps), margins were 19.4%, showing stable underlying profitability down only 13 bps YoY. Another similar charge is expected in Q4 (Shiv Walia).
Retail Vertical Performance
- Question: What drove the Retail vertical’s strong Q3 despite typical seasonality? (Ravi Menon)
- Answer: Performance was driven by execution of previous wins; the new $473M mega deal did not contribute in Q3 and will ramp up in Q4 (C. Vijayakumar).
Software Business
- Question: Why did perpetual license revenue tick up against the subscription trend? (Nitin Padmanabhan)
- Answer: It was driven by a specific sovereign client requirement for a $55M deal. The strategy remains focused on converting clients to subscription/term models (C. Vijayakumar).
Key Takeaway
HCLTech delivered a robust Q3 FY26, crossing the $15 billion annualized revenue milestone with CC growth of 4.8% YoY. The quarter was highlighted by a record ACV and a $473 million mega-deal win in the retail sector, underpinned by the AI Force 2.0 platform. While EBIT margins (18.6%) were impacted by deliberate restructuring costs, underlying profitability remains strong at 19.4% when normalized. Management raised the FY26 Services revenue growth guidance to 4.75%-5.25%, reflecting confidence in the ER&D and Software segments. Strategy is clearly pivoting toward “Day-1” AI infrastructure and custom silicon development as traditional discretionary spend remains muted. Investors should monitor the completion of restructuring in Q4 and the recurring impact of new labor codes as the company enters FY27.
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