HCLTech Q3 net profit falls 11% on impact of new labour codes, topline grows 13.3% to Rs 33,872 crore

HCLTech reported an 11.2% on year decline in consolidated net profit at Rs 4,076 crore for the quarter ended December 31, impacted by an exceptional one-time cost of Rs 956 crore related to the new labour codes during the quarter, and tax expenses totalling Rs 1,427 crore. The company's net profit in the year ago period stood at Rs 4,591 crore, while on a sequential basis, it fell 3.7% from Rs 4,235 crore in the quarter ended September 30.

The company's topline performance was robust, with revenue growing 13.3% on year and 6% quarter-on-quarter to Rs 33,872 crore. HCLTech had clocked revenue of Rs 29,890 crore in the corresponding quarter of the previous fiscal, and Rs 31,942 crore in the second quarter of FY25-26. 

"The New Labour Codes has resulted in estimated one time increase in provision for employee benefits of the group and the company of Rs 956 crores and Rs 948 crores, respectively and the same has been recognized as an employee benefit expense in the current reporting period," HCLTech said in a regulatory filing to the stock exchanges. 

In November last year, the Centre had consolidated multiple existing labour legislations into a unified framework comprising four labour codes collectively referred to as the New Labour Codes. Currently, the govenrment is in the process of notifying related rules to the New labour Codes, and the impact of these will be evaluated and accounted for in accordance with applicable accounting standards in the period in which they are notified. 

HCLTech's rival TCS, which also announced its third quarter numbers on Monday had reported a similar exceptional charge of Rs 2,128 crore related to statutory impact of of new labour codes that impacted its consolidated net profit, which fell 14% on year to Rs 10,657 crore.   

In constant currency terms,HCLTech's revenue increased 4.2% sequentially and 4.8% year-on-year. Constant currency refers to a financial reporting method that eliminates the effects of currency fluctuations on revenue and expenses, and enables companies to assess their financial performance without the impact of changing exchange rates.  

Revenue from IT and business services, which accounts for 72.3% of the total revenue, in constant currency grew 1.5% on a sequential basis and 3.8% on year. Engineering and R&D services' revenue grew 3.1% from the quarter ended September 30 and 10.8% year-on-year.

Revenue from advanced AI, which HCLTech began reporting last quarter, increased 19.9% on quarter to $146 million.

EBIT margins, HCLSoftware metrics

For the quarter under review, earnings before interest and taxes (EBIT) margins stood at 18.6%. This included impact of restructuring cost of 81 bps in the October-December period and 55 bps in the quarter ended September 30. 

 “(We had) another standout quarter on all fronts… with a strong recovery of operating margin to 18.6%. The strong revenue momentum in the quarter has enabled us to cross $15 billion in annualized revenues. Our new bookings were exceptionally high at $3 billion. We are well-positioned to address the evolving AI demand of our clients across industries and service lines,” said C Vijayakumar, CEO & Managing Director, HCLTech.

Driven by seasonality and its data Intelligence portfolio, HCLTech said revenue of HCLSoftware grew 3.1% from the year ago quarter and 28.1% sequentially in constant currency. As of December 31, HCLSoftware’s annual recurring revenue (ARR) stood at $1.07 billion.

Guidance, Headcount

Indai's third largest IT services company raised its revenue growth guidance to 4.0-4.5% from the year ago quarter in constant currency terms.

It also guided for higher services revenue growth to 4.75-5.25% year-on-year. However, it retained the EBIT margin guidance at 17-18%, excluding the ₹956 crores ($109 million) one-time impact of the New Labour Codes on EBIT. 

As of Dec 31, the total employee headcount stood at 226,379 compared to 220,755 in the year ago period. HCLTech added 2,852 freshers during the quarter, taking the fresher addition in the past nine months to 10,032. Employee attrition rate fell to 12.4% in the third quarter, a decline of 80 bps from 13.2% recorded year ago.