HCL Technologies (HCLTech) saw its share price dip over 2% following the release of its Q3 FY26 results. The IT services firm reported an 11.2% year-on-year (YoY) decline in consolidated net profit, which has prompted investors and analysts to reassess their positions. Here's a breakdown of the results and what investors should consider:

Q3 FY26 Performance Overview

For the third quarter of FY26, HCLTech reported a consolidated net profit of ₹4,076 crore, down from ₹4,591 crore in the same period last year. However, the company demonstrated strong top-line growth, with revenue from operations increasing by 13.3% to ₹33,872 crore, compared to ₹29,890 crore in Q3 FY25.

Sequentially, the company's profit slipped by 3.7%, while revenue increased by 6% compared to the previous quarter (Q2 FY26). HCLTech's Chief Executive Officer and Managing Director, C Vijayakumar, noted that the company crossed a key revenue milestone during the quarter, exceeding $15 billion in annualized revenues. New bookings were exceptionally high at $3 billion.

Key Factors Influencing Results

One of the primary reasons for the decline in profitability was the one-time impact of new labor codes, which amounted to ₹956 crore. Despite this, the company's EBIT margins expanded to 18.6% in Q3 FY26 from 17.5% in Q2 FY26, although they were down from 19.5% in Q3 FY25.

HCL Software revenue experienced substantial growth, increasing by 28.1% quarter-on-quarter (QoQ) and 3.1% year-on-year (YoY) in constant currency, driven by seasonality and the data intelligence portfolio. Advanced AI services also saw significant growth, up 19.9% QoQ.

Revised Guidance and Dividend Announcement

HCLTech has raised its revenue growth guidance for FY26 to 4.0% - 4.5% YoY in constant currency. Services revenue growth is expected to be between 4.75% - 5.25% YoY in constant currency. The EBIT margin is projected to be between 17.0% - 18.0%. The company also declared an interim dividend of ₹12 per share for the quarter, marking the 92nd consecutive quarter of dividend payouts. The record date for the dividend is January 16, 2026, and the payment date is January 27, 2026.

Brokerage and Analyst Perspectives

Following the Q3 FY26 results, various brokerages have offered their perspectives on HCLTech's stock. While most acknowledge the company's solid quarterly performance, some remain cautious due to valuation concerns and limited near-term upside potential.

• Cautious Stance: Some brokerages have maintained neutral or hold ratings, citing concerns about valuation and seasonal risks. CLSA kept a Hold rating with a target of Rs 1,661.
• Positive Outlook: Nomura has a more optimistic outlook with a Buy rating and a target price of ₹1,810, expressing confidence in HCLTech's AI-led growth strategy. Motilal Oswal Financial Services also has a Buy rating and raised the target price to ₹2,200, expecting a strong CAGR in USD revenue and INR PAT over FY25-28.

What Should Investors Do?

Given the mixed reactions and the factors influencing HCLTech's performance, investors should consider the following:

• Acknowledge the impact of one-time expenses: The new labor codes significantly impacted profitability in Q3 FY26. Investors should consider this a non-recurring event when evaluating the company's long-term performance.
• Evaluate growth in key areas: HCLTech's strong growth in software and AI services indicates its potential to capitalize on emerging technology trends. Investors should monitor the company's progress in these areas.
• Consider brokerage opinions: While some brokerages are cautious, others are optimistic about HCLTech's future prospects. Investors should weigh these opinions alongside their own analysis.
• Long-term vs. Short-term: Investors with a long-term perspective may find HCLTech's fundamentals appealing, while those seeking short-term gains might be more cautious.

Conclusion

HCLTech's Q3 FY26 results present a mixed bag, with a decline in net profit but strong revenue growth. The company's strategic focus on AI and digital services, along with a healthy deal pipeline, positions it well for future growth. However, investors should carefully consider the valuation, potential seasonal impacts, and overall market conditions before making any investment decisions. The company's guidance for FY26 and commentary on future growth drivers will be crucial for investors to monitor.