Muted Q4, weak forecast cast a shadow on HCLTech

ET Intelligence Group: HCL Technologies (HCLTech) has exited FY26 on a muted note with sequentially lower revenue due to delays in project ramp ups and scaling down of discretionary spending by select clients, shrinking profitability and a three-quarter low total contract value (TCV) of new deals for the March quarter. In addition, the FY27 guidance at 1.5-4.5% growth for services revenue is lower than the 3-6% range expected by analysts. For investors, these factors will overshadow the fact that the country’s third largest software exporter reported the highest top line growth among peers including Tata Consulting Services (TCS), and Wipro for the third consecutive fiscal year. Also, at 6%, the FY26 growth in dollar revenue was the strongest since FY23 when HCLTech had reported a 9.6% jump.

Infosys, the second largest in the pecking order, will declare the financial numbers for the quarter and for the year on Thursday. To be sure, in the first nine months of FY26, Infosys had reported 3.9% revenue growth compared with 6.2% increase for HCLTech.

HCLTech’s revenue growth guidance for FY27 is significantly lower than the actual FY26 growth, implying the effect of growing dependence of clients on operating efficiencies driven by ever rising capabilities of the artificial intelligence (AI) models and agents. HCLTech estimates a deflation or reduction of 2-3% in revenue from traditional IT services (non-AI based) per annum driven by the AI disruption.

To alleviate the AI impact on future business growth, HCLTech is actively focussing on delivering advanced AI solutions, classified as AI native in tech parlance, which are different from services related to datacentre, cloud management and cyber security that some of the peers have started rolling out. On an annualised basis, the company reported $620 million revenue from advanced AI streams for FY26. It grew at a faster rate of 7% year-on-year compared with the total revenue growth of 6%.

For the June quarter, the revenue momentum may remain muted considering the spill-over effect of the delays in decision making and ramp down of a few assignments in the prior quarters. This seems to reflect in the full year guidance of the company. That also means, growth may pick up in subsequent quarters as project ramp ups for new deals improve.

The company’s stock trades at a trailing price-earnings multiple of around 23, which is at a premium to the P/E of around 18 for TCS, the largest peer, which reported revenue contraction for FY26. HCLTech’s stock may show weakness in the near term given the lower than expected growth guidance.