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View & Valuation:

HCLT has made significant strategic investments over a period of time, resulting in strong Q2 performance. The company has reached a major milestone of USD 100Mn in advanced AI revenue, which contributes 3% to its top-line. The company’s strategy is to invest in building intellectual property, deepening partnerships and strengthening go-to-market delivery teams to scale up AI adoption for clients backed by its AI Force platform. This, we believe, would lead to improved financial performance for HCLT, going ahead. Hence, we have revised our estimate upwards and expect Revenue/EBIT/PAT to expand at a CAGR of 8.7%/8.5%/7.7%, respectively, over FY25–FY28E. Thus, we recommend our BUY rating with a revised target price of INR 1,720.

Q2FY26 Results above Expectations, Strong Growth in Revenue & EBIT: 

* Reported Revenue for Q2FY26 stood at USD 3,644Mn, up 2.8% QoQ (vs CIE est. at USD 3,615Mn), while in CC terms revenue was up 2.4% QoQ. In INR terms, revenue stood at INR 319.4Bn, up 5.2% QoQ and 10.7% YoY.

* EBIT for Q2FY26 came in at INR 55.5Bn, up 12.3% QoQ (vs CIE est. at INR 54.6Bn). EBIT margin came at 17.5% up 116 bps QoQ (vs CIE est. at 17.1%).

* PAT for Q2FY26 came in at INR 42.3Bn, up 10.2% QoQ (vs CIE est. at INR 42.6Bn).

FY26E Revenue Guidance Retained at 3–5% CC, led by Growth in Services:

HCLT reported net new TCV bookings of USD 2.56Bn in Q2FY26, up 41.8% QoQ, aided by two large deals deferred from Q1 and also without any mega deal closures. The company targets a steady quarterly TCV run-rate of USD 2.5Bn. HCLT maintained its revenue growth guidance at 3–5% CC, with Services expected to grow 4–5% YoY CC, while Software business is expected to remain weak. HCLT’s focus on IP-led AI solutions, expansion of AI-driven services and increase in ACV from large existing deals with embedded-AI will drive long-term growth. The overall pipeline remains healthy and well-diversified across geographies and verticals. Growth continues to be strong in BFSI, Telecommunications and Technology & Services, while Public Services, Retail & CPG and Lifesciences & Healthcare are showing similar positive momentum. However, the Manufacturing vertical remains subdued, impacted by the ongoing slowdown in the automobile segment.

FY26 EBIT Margin Guidance Retained at 17–18%; Impact of Wage Cycle

Q2FY26 EBIT margin came in at 17.5%, up 116bps QoQ. This includes a 35 bps gain in the software segment, a 30 bps benefit from the absence of a Q1 headwind, 50 bps from higher utilization, a 56 bps forex tailwind, partly offset by 55 bps of restructuring costs. The full-year EBIT margin guidance remains unchanged at 17% to 18% despite the impact of wage revision cycle of (70– 80 basis points) in Q3 and incremental Q4 impact (40–50 basis points) along with 40 bps of full-year restructuring costs. Employee headcount stood at 226,640 as of Q2FY26, net addition of 3,489. Voluntary LTM attrition rate came in at 12.6% v/s 12.8% in Q1FY26. Fresher hiring has seen a significant jump (5,196 added in 2Q), in line with the plans for FY26. With strong local hiring in the U.S., company continues to reduce its dependence on H1-B visa.

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