HCLTech Short Term Squeeze, Long Term Opportunity — Are You In?

Описание: HCL Technologies' Q1 FY26 performance showed a mixed financial picture, with revenue increasing sequentially and year-over-year, but a notable decline in profitability metrics such as Gross Profit, EBITDA, EBIT, and Profit After Tax (PAT). The EBIT margin decreased from 18.0% in Q4 FY25 to 16.3% in Q1 FY26. This margin compression was a surprise and primarily attributed to strategic investments for the future, specifically to be "ready in AI-driven landscape".
Reasons for the margin hit include higher sales and marketing expenses (30 basis points impact), lower utilization (80 basis points impact) due to building specialized skills, a one-off client bankruptcy (30 basis points), and a lower share of high-margin software. HCL is investing heavily in AI and its go-to-market strategy, focusing on pivoting its business delivery model, up-skilling, and hiring new-age talent to remain competitive amidst a "tectonic shift" in the technology sector.
While order inflows for Q1 FY26 were decent but soft due to spillover, the company increased the lower end of its full-year revenue growth guidance to 3-5% in Constant Currency for FY26. However, it lowered its full-year margin guidance from 18-19% to 17-18%, anticipating continued pressure due to these investments. The management views this as "short-term pain for long-term gain", expecting margin normalization in FY27 or by the exit quarter of FY26. For long-term investors, the suggestion is to add the stock during corrections, as HCL is expected to emerge stronger post this investment phase