India’s HCLTech slides on lower annual operating margin forecast

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(Reuters) -Shares of HCLTech fell as much as 4.3% on Tuesday, a day after India’s No. 3 software services provider lowered its annual operating margin forecast, dampening hopes of a rebound in client spending across the sector.

HCLTech was the top loser on benchmark Nifty 50 index and the Nifty IT index, which were up 0.6% and 1%, respectively, as of 11:11 a.m. IST.

At least eight brokerages cut their price targets on the stock after the IT firm reduced its operating margin forecast for fiscal year 2026 to a range of 17% to 18% from a previous projection of 18% to 19%.

At least six brokerages downgraded the stock, data compiled by LSEG showed. The average rating of 41 analysts is “hold”.

Tariff-related uncertainty in the United States — the biggest market for India’s $283 billion IT sector — has dashed hopes for a rebound in client confidence and spending. A survey in May showed two in five tech executives had deferred discretionary projects.

HCLTech’s consolidated net profit for the June quarter fell 9.7% on-year to 38.43 billion rupees ($447 million) even as its revenue beat analysts’ average estimates. 

The company’s order bookings for the quarter stood at $1.81 billion, compared with $1.96 billion a year ago, and its operating margin declined 80 basis points to 16.3%.

CEO C Vijayakumar said in a post-earnings call that the company will undertake further restructuring in the ongoing fiscal year. Analysts said the restructuring costs will spill over to the second quarter and pressure margins.

Analysts at Emkay Global said “the margin cut disappoints”, while Antique Stock Broking said the drop in margins was “a bigger surprise”.

Industry leader, Tata Consultancy Services, earlier this month, missed quarterly revenue estimates, driven by a dip in four of its six verticals.

($1 = 85.9200 Indian rupees)

(Reporting by Manvi Pant; Editing by Sonia Cheema, Mrigank Dhaniwala and Eileen Soreng)