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HCL Technologies Ltd

| Q2 FY26 Earnings Conference Call

NEUTRAL SENTIMENT

Report Source

⬤13th Oct 25

Summary : HCLTech delivered strong Q2 FY26 results with broad-based growth, margin expansion, and record bookings, driven by significant AI investments and strategic partnerships, while navigating software segment softness and restructuring impacts.

Management Perspective positive : This was a strong and energizing quarter for us with broad-based growth, expansion in margins, and exceptional bookings. I am proud of how our teams are executing and winning in the market. The momentum is building, the results are encouraging, and our conviction is stronger than ever. Our pipeline remains robust and has grown to a record high.

Concall Report Analysis & Insights

Business Overview

  1. HCLTech reported a strong Q2 FY26 with broad-based growth and margin expansion.
  2. Revenue grew 2.4% sequentially and 4.6% year-on-year in constant currency.
  3. Services business grew 2.5% sequentially and 5.5% year-on-year in constant currency.
  4. Operating margins reached 17.5%, an increase of 116 basis points sequentially.
  5. New bookings were $2.6 billion, crossing $2.5 billion without mega deals.

Future Growth Prospects

  1. Advanced AI revenue exceeded $100 million, representing 3% of total revenue.
  2. Strategic investments in AI IPs, partnerships, and new AI-led services are yielding results.
  3. AI Force platform is deployed across 47 accounts, with v2.0 beta release and GA planned for January 2026.
  4. The pipeline is robust and at a record high, supported by Advanced AI propositions.
  5. Focus on localization and reduced H-1B visa reliance strengthens global delivery model.

Management Insights

  1. Management is energized by Q2 performance and confident in the company's trajectory.
  2. The strategy is delivering results, with teams executing and winning in the market.
  3. Operating margins are recovering in line with the previously shared recovery plan.
  4. Full-year Services revenue growth guidance is raised to 4%-5% in constant currency.
  5. The company is prioritizing investment in AI to drive growth with disciplined margins.

Signs of Skepticism

  1. Management did not provide specific full TCV numbers, including renewals, for transparency.
  2. The exact margin benefit from ongoing restructuring efforts is difficult to pinpoint at this stage.
  3. The timeline for a large enterprise CPU to GPU upgrade cycle in IMS is still considered early days.
  4. Headcount evolution with AI is a long-term view, with specific numbers not yet available.

Risk Factors

  1. Overall Software business revenue was lower due to a decline in perpetual license revenue.
  2. The auto sector slowdown continues to impact the manufacturing vertical.
  3. Restructuring expenses impacted Q2 margins by 55 basis points, with spillover expected in Q3 and Q4.
  4. H-1B visa fee revisions and localization efforts may lead to higher investments and potential margin headwinds.

Good To Know

  1. HCLTech was recognized by Time Magazine as the highest-ranked India-headquartered technology company.
  2. HCL Software was named a leader in Gartner Magic Quadrant for application security testing and service orchestration.
  3. New partnerships include SailPoint, Thought Machine, Pearson, and MIT Media Lab.
  4. Received the Dell AI Partner of the Year Award for VisionX Solution.
  5. Trained 820 black belts in H1 and embedded data/AI principal cohorts in over 50% of priority accounts.

Key Drivers

  1. Advanced AI revenue growth.
  2. Record high deal pipeline.
  3. Increased subscription revenue.
  4. Large legacy modernization wins.

Key Analyst Discussions

Competitive Environment

  1. HCLTech gained market share in Financial Services, contributing to 11% growth in the vertical.
  2. The company aims to be a leading partner for enterprises in the AI era, leveraging scale and software culture.

Market Trends & Consumer Behavior

  1. Auto vertical pipeline is strong, but decision-making is slow due to industry stress.
  2. Demand elasticity is highest in modernization, driving significant new programs.
  3. AI-led productivity is expected to impact BPO (40-50%), SDLC (25-30%), and IT Ops (10-15%).

Financial Highlights

  1. Advanced AI revenue is billed through fixed-price, time-and-material, and IP licensing models.
  2. Restructuring charges will continue through Q3 and potentially Q4, impacting full-year margins.
  3. Management will provide clarity on structural margin benefits from restructuring with FY27 guidance.
  4. New revenue from scope expansion in renewals is included in booking numbers.

Product Composition

  1. The IP component of Advanced AI revenue is currently small but expected to increase.
  2. The industry is evolving towards a people-plus-IP and platform-based service provider model.
  3. HCLTech is investing in differentiated IP by leveraging core intelligence layers from partners like OpenAI.

Strategic Considerations

  1. HCLTech maintains an asset-light business model, focusing on IPs and servicing large data centers.
  2. Non-linearity in headcount and revenue is evident, with revenue per employee increasing year-on-year.
  3. Localization efforts, including local hiring and training, are a strategic focus to reduce visa dependence.
HCL Technologies Ltd (HCLTECH) Concall Report Analysis & Insights | Dhanarthi