Key Takeaways:
- Market Valuation Drop: Shares plunged nearly 10% after HCLTech missed Q4 estimates and issued a conservative 1% to 4% revenue growth forecast for FY27.
- The “AI Paradox”: While AI revenue reached $620 million annually, management noted that AI efficiencies are actually stripping 2% to 3% in pricing from traditional business segments.
- Spending Contraction: Growth is stalled by delayed client decision-making and significant budget cuts from U.S. telecom providers and large-scale SAP projects
HCL Technologies’ shares fell nearly 10% on Wednesday after the company reported weaker-than-expected fourth-quarter earnings and issued cautious FY27 revenue growth guidance of 1% to 4% amid soft demand and delayed client spending.
HCL Technologies Flags Weak Demand And Lower Spending
The Noida-based IT company reported consolidated net profit of ₹4,488 crore for the January-March quarter, up 4.2% from ₹4,307 crore a year earlier. Revenue from operations rose 12.3% to ₹33,981 crore from ₹30,246 crore in the same quarter last year.
Despite the growth, investors reacted sharply after management said demand remained volatile and discretionary spending continued to weaken. HCLTech shares fell as much as 9.7% to ₹1,301 on the NSE in early trade.
The company projected FY27 revenue growth of 1% to 4% in constant currency. Management said the wide guidance range reflected market uncertainty, lower discretionary spending and expected ramp-downs in two client accounts.
“For the quarter, our performance came below our expectations due to softness in certain parts of our business, lower discretionary spending and delayed decision-making,” CEO and Managing Director C. Vijayakumar said during the earnings call.
AI Growth Offsets Pressure In Traditional Business
HCL Technologies said its new AI-focused offerings continued to gain traction even as traditional services faced pricing pressure. The company reported annualized advanced AI revenue of more than $620 million in the fourth quarter, with quarterly AI revenue reaching $155 million.
Management said AI is reducing pricing in traditional business segments by 2% to 3% annually because clients are demanding more efficiency. However, the company said rising demand for AI services is helping offset that pressure.
“Our pipeline remains robust and broad-based across segments, verticals and regions, with AI increasingly integral to nearly all deal conversations,” Vijayakumar said.
The IT and Business Services segment grew 4.3% year over year, while Engineering and R&D Services rose 3.8%. The software business declined 14.1%.
For the full fiscal year, HCL Technologies posted net profit of ₹16,642 crore, down 4.3% from the previous year. Full-year revenue rose 11.2% to ₹130,144 crore.
Analysts Warn Of Continued Pressure In FY27
Analysts said the company could remain under pressure in the coming quarters because of weak client spending, margin pressure and cautious guidance.
JPMorgan Chase said HCLTech’s March quarter missed estimates on revenue, margins and earnings, with revenue about 2% below expectations. The firm said weakness in the services business was driven by spending cuts from U.S. telecom clients and SAP-related cancellations.
Morgan Stanley said HCL Technologies’ valuation premium over peers could narrow as growth slows across the sector. It also warned that AI-led pricing pressure in core business segments may weigh on near-term growth even as digital and AI services expand.
HCL Technologies reported a total contract value of new deal wins at $1.94 billion in the fourth quarter and $9.32 billion for the full year. The company added 802 employees on a net basis during the quarter, taking total headcount to 227,181.
Management said exposure to the Middle East remained limited at about 1% of revenue despite prolonged tensions in the region.
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