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Guidance Intact; AI Platform Expands, Supporting Medium-term Growth Visibility:

Q1FY27 was broadly in line, with seasonal weakness weighing on growth while margin remained resilient. The management hold FY27 guidance despite record Q1 TCV of USD 2.4 Bn, with strong bookings and a healthy pipeline creating scope for an upward revision as deal conversions gain traction. Commentary remains strong for the next few quarters despite a selective discretionary spending environment. HCLT also announced a INR-35 Bn strategic investment in AI data centres, extending its AI proposition beyond services into infrastructure and positioning itself as a full-stack AI partner. While AI-led productivity is expected to remain a near-term pricing headwind and verticals, such as Telecom and Automotive continue to face demand pressures, we believe improving deal momentum and expanding AI monetisation opportunities underpin the medium-term growth outlook. We cut our earnings estimate by 0.5-2.5% on account of continued AI investments and arrive at a TP of INR 1,330 (earlier INR 1,410) based on FY28 EPS and assign a ‘ADD’ rating.

Revenue in Line, Margin Beats Estimate; Deal TCVs Grew Strongly

* HCLT reported Q1FY27 revenues at USD 365 Cr, down 0.9% QoQ and up 3.0% YoY (vs CIE estimate of USD 366 Cr). CC revenue was down 0.5% QoQ & up 2.6% YoY. In INR terms, reported revenue stood at INR 34,579 Cr, up 1.8% QoQ and 13.9% YoY (vs CIE estimate of INR 34,408 Cr).

* EBIT stood at INR 5,831 Cr, up 3.8% QoQ and 18.0% YoY (vs CIE estimate of INR 5,320 Cr). Margin came at 16.9% for Q1FY27, up 32 bps QoQ and 58 bps YoY (vs CIE estimate of 16.7%).

* PAT for the quarter came in at INR 4,624 Cr, up 3.0% QoQ and up 20.3% YoY (vs CIE estimate of INR 4,730 Cr).

Growth Recovery to Build; AI Continues to Strengthen Medium-term Outlook:

Revenue remained subdued due to seasonal weakness and continued selectivity in discretionary spending, with Telecom, Manufacturing (Auto) and ER&D remaining soft, partly offset by healthy traction in Retail. The management expects demand to improve progressively, supported by a healthy pipeline, record deal bookings and improving execution over the next few quarters. AI remained the key growth engine, with Advanced AI revenue rising to USD 172 Mn (+62% YoY), underpinned by expanding enterprise adoption and a growing portfolio of AI-native solutions. The planned INR-35 Bn AI data centre investment further broadens HCLT's AI capabilities into infrastructure, reinforcing its differentiated full-stack AI positioning and strengthening its ability to capture the next wave of enterprise AI spending, while partially offsetting the near-term productivity-led pressure on traditional services.

Margin to Remain Range-bound; AI Investments to Limit Near-term Upside:

EBIT margin improved sequentially to 16.9%, supported by lower restructuring costs and favourable forex, while the management reiterated its FY27 EBIT margin guidance of 17.5–18.5%, which already factors in a 40–50 bps restructuring impact. With continued investments in AI capabilities, data centre infrastructure and go-to-market initiatives, we forecast margin expansion to remain gradual, with benefits from operating leverage largely offset by strategic investments. We, therefore, expect FY27 margin to trend towards the lower end of the guided range, with meaningful expansion likely only as revenue growth broadens.

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