HCL Tech Q3 Preview: Double-digit revenue growth, margin recovery eyed

IT services company HCL Technologies is expected to deliver a strong top-line performance in the December quarter, aided by seasonality in products and ER&D services, currency tailwinds, and ramp-up of large deal wins. An average of five brokerages estimates revenue growth of about 12% year-on-year, while profit after tax (PAT) is seen growing around 5% YoY, reflecting margin recovery tempered by restructuring costs and wage hikes.

Brokerages expect quarter-on-quarter revenue growth of 4–5%, placing HCL Tech among the faster-growing large-cap IT services peers for the quarter.

Revenue: Seasonality and deal ramp-ups drive growth

YES Securities estimates Q3 revenue at about Rs 33400 crore, implying 11.8% YoY and 4.6% QoQ growth. In constant currency terms, growth is projected at 3% QoQ, supported by seasonal strength in software products and ER&D services.

Axis Securities expects 4.5% sequential growth, driven primarily by seasonal uptick in ER&D and software businesses. Kotak Equities, while more conservative on services growth, expects 1% QoQ expansion in services, with products seasonality contributing an incremental 180 basis points to overall revenue growth.

The ramp-up of large deals won over the past few quarters is expected to aid growth visibility, even as discretionary spending remains selective across verticals.

Margins: Sharp sequential recovery expected

Margins are likely to be the key positive surprise for the quarter. Axis Securities expects EBIT margin expansion of 187 basis points QoQ, driven by favourable currency movements, operational efficiencies and seasonality benefits, partially offset by wage hikes.YES Securities estimates EBITDA margins to expand by about 145 bps sequentially to 22.1%, with EBITDA rising 11.9% QoQ. Kotak Equities expects an underlying EBIT margin improvement of 100 bps QoQ to 18.5%, even after factoring in a 70 bps impact from restructuring charges.Brokerages broadly believe the December quarter could mark a turning point in margin trajectory, setting the stage for gradual recovery toward the 18–19% band over the medium term.

Profit: Growth modest despite operating leverage

Despite strong margin improvement, PAT growth is expected to remain modest on a year-on-year basis. YES Securities projects PAT of around Rs 4600 crore, implying flat YoY growth, though sequential growth is estimated at nearly 9%.

The relatively muted YoY PAT growth reflects the impact of restructuring costs, wage hikes and investments, even as operating leverage improves. Sequential improvement in profitability is expected to be stronger than headline YoY numbers suggest.

Deal wins and guidance in focus

Brokerages expect healthy deal TCV of around $2.5 billion during the quarter. Kotak Equities expects HCL Tech to narrow its FY2026 revenue growth guidance to 3.5-4.5% (from 3-5% earlier), while revising services revenue growth guidance upward to 4.5-5%. The company is expected to retain its EBIT margin guidance of 17–18% for the year.

Management commentary on deal pipeline strength, conversion timelines, and profitability of cost take-out and vendor consolidation deals will be closely watched.

GenAI, ER&D and discretionary spending

Investor focus is likely to remain on GenAI adoption trends, monetisation opportunities and the potential deflationary impact of AI on technology spending. Axis Securities highlighted GenAI adoption as a key monitorable, alongside ER&D performance and guidance commentary.

Kotak Equities expects management to provide greater clarity on recent investments in ER&D services and products, and how these bets could support growth acceleration into high single digits over the medium term.

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