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AI-led Deal Momentum Strengthens Outlook.

View & Valuation: HCLT delivered a strong, broad-based performance driven by momentum in AI-powered solutions and large-scale transformation programs. HCL Software segment grew by robust 28% QoQ to USD 425 Mn well ahead of expectations, while Advanced AI revenue reached USD 146 Mn, up 19% QoQ, indicating strong growth traction. The company also strengthened its ecosystem through initiatives such as the NVIDIA Physical AI Lab, industrial AI use cases with SAP, and a deeper AWS partnership for AI-led BFSI innovation. Hence, we have revised our estimate slightly upwards and expect Revenue/EBIT/PAT to expand at a CAGR of 11.5%/11.8%/10.1%, respectively, over FY25–FY28E. Thus, we recommend our ADD rating and revise our target price to INR 1,800, based on 22x the average of FY27E and FY28E EPS of INR 80.

Q3FY26 Results above Expectations, Strong Growth in Revenue & EBIT:

* Reported Revenue for Q3FY26 stood at USD 3,793 Mn, up 4.1% QoQ (vs CIE est. at USD 3,728 Mn), while in CC terms revenue was up 4.2% QoQ. In INR terms, revenue stood at INR 338.7 Bn, up 6.0% QoQ and 13.3% YoY.

* EBIT for Q3FY26 came in at INR 62.9Bn, up 13.2% QoQ (vs CIE est. at INR 59.2Bn). EBIT margin came at 18.6% up 118 bps QoQ (vs CIE est. at 17.7%).

* PAT for Q3FY26 came in at INR 40.8Bn, down 3.8% QoQ (vs CIE est. at INR 46.4 Bn).

FY26E Revenue Guidance Increased to 4 – 4.5% cc, AI-Led Deal Momentum Strengthens Outlook: HCLT reported strong deal momentum with new deal TCV of USD 3.0 Bn, up 17% QoQ, while TTM deal wins increased 21% YoY. ACV bookings were at 4-year high, driven by robust demand in applications and ER&D services, which together contributed 62% of total bookings, underpinned by rising adoption of AI-led transformation. HCLT closed multiple large strategic deals, notably a USD 473 Mn, 5-year mega deal with a global retailer, along with key wins across insurance, food & beverage, and technology. The deal pipeline remains healthy and well-diversified across geographies and verticals, supporting strong demand in AI, engineering, and digital foundation services. Vertical performance was broad-based, led by Technology (+14.1% YoY) and Financial Services (+8.1% YoY), while sequential growth was driven by Manufacturing, Retail & CPG, and Public Services. ER&D services grew 10.8% YoY, supported by strong traction in Physical AI, custom silicon, and AI Factory programs. The management raised FY26 services revenue growth guidance to 4.75–5.25% CC, reflecting improved visibility and execution confidence.

FY26 EBIT Margin Guidance Retained at 17–18%; Impact of Wage Cycle In Q3FY26, the company reported an EBIT margin of 18.6%, up 118bps QoQ, primarily driven by higher profitability in the software segment. The margin included an 81bps impact from restructuring costs and was supported by higher utilization (104bps) and forex gains (40bps).This was partially offset by wage hikes (80bps), furlough and seasonality (45bps), and restructuring expenses (26bps). Margin was down 90 bps YoY mainly due to wage hikes and furlough impacts (30–40 bps). However, exceptional one-off expenses of INR 9.5bn due to new labor codes had impact on PAT, which otherwise would have been up sequentially. The employee headcount stood at 226,379, down 261 sequentially, while voluntary attrition improved slightly to 12.4% from 12.6% in the previous quarter. Fresher hiring during the quarter was 2,852, lower than 5,196 in Q2FY26.

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