HCL Tech’s Margin Decline: What It Means for IT Firms

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IT companies reported marginal year-on-year growth in margins despite global headwinds but suffered sequential decline in the quarter ending March 31, 2025. Analysts however expect improvement in margins in future quarters due to the good deal pipelines reported by companies in the sector.

According to Greyhound Research, the FY26 margin recovery will hinge on companies’ ability to modernise delivery models, extract automation gains, and renegotiate legacy constructs to reflect the new risk-cost balance. Many wins carry delayed realisation profiles and unpredictable profit curves, said the research firm.

As quoted in The Hindu Business Line, in an article authored by Vallari Sanzgiri published on April 24, 2025.

Additional comments by Greyhound Research analyst:

Margin Pressures Mount as HCL Tech Drags Down Industry Average in Q4FY25

Greyhound Flashpoint – HCL Tech’s margin fall—from 19.5% to 17.9% in Q4FY25—signals a deepening dilemma for Indian IT’s biggest players: deal wins are up, but profitability isn’t following suit. At Greyhound Research, we’re observing a widening disconnect in boardroom conversations—CFOs are pushing for execution speed and innovation, while delivery leaders are flagging structural cost fatigue. This divergence is eroding the historical link between scale and margin, forcing vendors into a new calculus for FY26: protect profitability, or prioritise relevance?

Greyhound Standpoint – According to Greyhound Research, HCL Tech’s margin compression is symptomatic of a broader transition underway in the global IT services sector. Vendors are contending with the twin pressures of investing ahead in AI capabilities while servicing contracts increasingly structured for agility, not stability. Despite robust deal pipelines, many of these wins carry delayed realisation profiles and unpredictable profit curves. FY26 margin recovery is not guaranteed—it will hinge on firms’ ability to modernise delivery models, extract automation gains, and renegotiate legacy constructs to reflect the new risk-cost balance.

Greyhound Pulse Insights – Greyhound Pulse CIO Tracker 2025 reveals that 61% of enterprise technology leaders globally have adopted fixed-phase, modular contracting over traditional long-term retainers. These structures, while accelerating digital outcomes, limit upfront billing and dilute margin visibility—especially for vendors navigating high-cost transformation mandates. Furthermore, 48% of respondents report favouring vendors that absorb early-stage risk, including pilot investments and shared automation outcomes, adding further pressure to margin management in early deal cycles.

Greyhound Fieldnotes – Per a recent Greyhound Fieldnote from multiple advisory sessions with Fortune 1000 CIOs and delivery heads across North America and Europe, vendors like HCL Tech are facing a margin squeeze from rising mid-contract innovation demands. Clients are increasingly requesting GenAI and automation upgrades within existing scopes—without proportionate changes to timelines or budgets. This is creating unplanned delivery strain and internal cost overruns, particularly in regulated sectors like BFSI and healthcare. While vendors recognise the strategic value of embedding innovation, this pattern is exposing a deeper structural issue: the contract models in place are misaligned with the speed and scale of transformation clients now expect.

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