HCL Technologies Ltd. is facing a margin squeeze driven by a sharp drop in employee utilisation, particularly within its specialised AI and contact center transformation team, onboarded in March.
The earnings before interest and tax has slipped 9% sequentially to Rs 4,942 crore, whereas the EBIT margin came in at 16.35%, missing the Bloomberg estimate of 17.45%.
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The information technology major revealed that about one-third of its AI-focussed team is currently underutilised, leading to an 80 basis points dent in Q1 margins.
What's Behind The Underutilisation
The under-utilisation stems from three main issues:
A large March ramp-up to build capacity for specialised skills in conversational AI.
Ramp-down in the automotive sector, which released delivery capacity.
Inability to redeploy employees from productivity gains, due to skill and location mismatches.
The CEO described these factors as temporary but acknowledged the depth of their impact in the current quarter. The company expects utilisation challenges to moderate in the second and third quarters, though a 10–20 bps drag on margins is likely for the full year.
Despite these pressures, HCL is not pulling back on hiring. It plans to hire more people in FY26 than FY25, with a higher intake of freshers in the current quarter, especially in specialised roles.
HCLTech Chief People Officer Ramachandran Sundararajan said the company is paying more niche, specialised talent, which is critical to its AI-led transformation strategy.
While the macro environment remains stable, and demand stays strong in financial and tech verticals, utilisation and restructuring will be key focus for the company in the coming quarters.
The management is of the view that restructuring and optimisation efforts would play out in the second and fourth quarters, and the margins are likely to be scaled to the 18–19% range. However, these restructuring measures and other aspects will also add to near-term costs, and another 100 bps margin impact is expected in Q2.
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