ECLERX Q2 FY27 Earnings Call: H1 ACV Slips 10%, AI Revenue Grows 2.5-3x Faster

ECLERX held its Q2 FY27 earnings call on October 28, 2026. Here's a quick read of what management said — performance, strategy, and the outlook ahead.

13th Consecutive Growth Quarter, But Growth Quality Mixed

• Q2 FY 2026-2027 operating revenue of USD 127.7 million — up 10.6% YoY, 12.9% in CC, and 1.5% QoQ; INR revenue at Rs.11,887 million, up 18% YoY at an implied rate of 93.1/USD.
• Operating EBITDA at Rs.2,839 million (23.9% margin) — up 90 bps QoQ; PAT at Rs.1,804 million (14.9% margin, up 9.8% QoQ); EBITDA including other income of Rs.240 million was 25.4%, up 120 bps QoQ.
• EPS of Rs.19.6 — with cash and equivalents at Rs.14,318 million, ROE at 24.7%, and operating cash flow of Rs.2,694 million (OCF/EBITDA at 87.5%, recovering from 38% in Q1 FY 2026-2027).
• Headcount up 3.4-3.5% QoQ against 1.5% revenue growth — utilization slipped to 74.9% (from 75.5%) and attrition rose to 23.4% following Q1 FY 2026-2027 wage increments; 724 offshore delivery additions and India seats up ~1,400 to 16,824.
• H1 FY 2026-2027 EBITDA margin ~190 bps below H1 FY 2025-2026 — reflecting continued investment in new locations, technology and AI, even as H1 EBITDA grew 11% YoY in absolute terms.
• Top 10 client concentration flat at 60% — DSO unchanged at 79 days; capex of Rs.585 million in Q2 FY 2026-2027 (H1 total Rs.919 million).

ACV Decline and Right-Shifting Dominate the Debate

• New deal wins of USD 31 million in Q2 FY 2026-2027 — down from USD 41 million in Q1; H1 FY 2026-2027 wins of USD 72 million vs USD 78 million in H1 FY 2025-2026, with management flagging selective client spending, tighter budgets and longer decision cycles as outlays shift toward AI.
• H1 FY 2026-2027 ACV of ~$72 million, ~10% below H1 FY 2025-2026 — CEO Kapil Jain attributed the dip to short-term volatility, delayed client decision-making and smaller initial deal sizes as clients test AI efficacy, not to a structural decline or competitive pressure from large IT peers.
• Management still working towards maintaining FY 2025-2026 ACV levels in FY 2026-2027 — but CEO conceded it will be "absolutely" difficult given H1 performance; analyst Sandeep Shah (Aquarius) estimated ~$49-50 million of ACV per quarter needed in Q3-Q4 FY 2026-2027 to stay flat.
• 25 clients above USD 3 million as of Q2 FY 2026-2027 — up from 20 a year ago, with 5 clients moving into the bucket; top 10 client growth slowed to mid-single digit 5-6% YoY, attributed by CFO Shrinivasan Nadadur to broad-based budget constraints "constrained for many people, not just the top 10."
• Strong GCC traction — management noted "every company is talking about setting up a GCC" and has created a strategy to pursue GCC opportunities, positioning eClerx as one of the only FS-space players that coexists with GCCs in BPO/KPO.
• Roll-off stable at 15-20% of revenue — in line with typical Q1-Q2 FY 2026-2027 levels; CFO said there is no significant or elevated roll-off pressure.

AI as Growth Engine — With Cannibalization Risks Acknowledged

• Tech/analytics/AI revenue growing 2.5-3x faster than traditional revenue — analytics & automation grew 5% QoQ and 27% YoY in Q2 FY 2026-2027, with an annual run-rate of ~USD 109 million (~20% of revenue) and a technology team of 2,300 people.
• ~300 people Anthropic cross-certified (280-300 Claude AI certifications to date) — with hiring onshore and offshore including forward-deployed engineers placed closer to clients; John (previously head of financial services) now heads enterprise-wide AI from the US, building his team across the US and continental Europe.
• Four prioritized GenAI-enhanced products — Compliance Manager, Market 360, QA 360 and Fluid 4 (digital asset management), supported by toolkits such as DocIntel and Loans Manager; management does not quantify AI-specific revenue since every service has a tech component with human-in-the-loop.
• AI adoption risk is real for clients — management noted data readiness remains a big challenge and, unlike the RPA era (achieving 30% versus a 40% target), AI errors carry "massive downside" and can "create havoc," so regulated-industry clients are taking a cautionary approach.
• Enterprise-wide AI ROI seen as "a little distant" — though small pockets are seeing 10x-20x improvements; some high-tech clients exhausted their AI token/spend budgets within one quarter, prompting CFO-driven rationalization; management clarified clients are not spending less on services.
• AI-led deal margins are neither better nor worse — the company is investing ahead of the curve upfront where it believes medium-to-long-term returns will materialize; elevated Q2 FY 2026-2027 subcontracting costs were largely technology-related.
• Management reiterated its commitment to cannibalize revenue if necessary — and is already seeing headwinds across the FCC space from AI adoption.

BFSI Under Pressure; Recovery Slips to Q4 FY 2026-2027

• BFSI up ~3% QoQ on short-term engagements — but pressured by easing US financial crime compliance regulation reducing refresh volumes at existing clients, plus AI adoption in FCC; CEO denied losing market share, stating eClerx outperforms its competition in the segment it operates in; a new payments-company win for AML/KYC services was secured.
• BFSI recovery pushed out to Q4 FY 2026-2027 — from an earlier Q3 FY 2026-2027 expectation, with management "cautiously optimistic" and growth momentum expected from FY 2027-2028 onwards via payments (KYC/ML) and mortgages (started in FY 2026-2027).
• CMT broadly flat QoQ — Cairo and Manila growing, QA360 deployed at a large client, healthy pipeline; high-tech traction driven by GenAI and transformation services.
• Fashion, luxury & retail flat YoY — Q2 seasonally lower due to the August holiday period in Italy, with luxury demand weak in China and Europe; management expects the typical seasonal sequential bounce-back in Q3 FY 2026-2027.
• Emerging business rose to 12.6% of revenue — from 11.7%; a mix of advertising, logistics and shipping companies with finance & accounting as the primary growing service line; FinOps spans the full finance cycle.
• Margin mix headwind from nearshore — majority of incremental Q2 FY 2026-2027 revenue came from the emerging F&A vertical serviced from nearshore centers (Philippines, Egypt) which carry lower margins than India BPO; mitigation is conditional on India growth sustaining, with the CFO committing to inform analysts if the margin outlook changes in FY28.

FX-Led Margin Gains Face H2 Cost Headwinds

• The 90 bps QoQ margin improvement was almost entirely FX-driven — per CFO Shrinivasan Nadadur, with delivery costs improving ~110 bps on INR depreciation, partly offset by G&A up ~14 bps (legal/professional fees) and F&B up ~10 bps.
• Government revised the statutory PF wage ceiling from Rs.15,000 to Rs.25,000 per month — effective September 17, 2026; management expects a 20 bps margin impact in H2 FY 2026-2027.
• D&A rose to Rs.558 million (4.7% of operating revenue) — from 4.3% in Q1 FY 2026-2027 on new facilities; management expects a further ~20 bps increase in H2 FY 2026-2027 as Mumbai and Pune seats come live in Q3-Q4 FY 2026-2027.
• Management remains confident of FY 2026-2027 operating EBITDA margin in the 24-28% range — though an analyst noted margins are tracking toward the lower end; CFO said margins will move up as bottom-of-pyramid replacement continues, with the incline dependent on revenue growth.
• FY 2026-2027 capex of ~Rs.180 crore implied — CFO corrected his earlier remark, clarifying H2 capex will be roughly the same as H1 ("90 plus 90", ~Rs.90 crore per half); ~1,400 seats added so far in FY 2026-2027 with another ~800-1,000 expected in Q3-Q4 FY 2026-2027, and capex not expected at this pace in FY 2027-2028.
• Effective tax rate of ~25% should be okay for FY 2026-2027 and FY 2027-2028 — per management guidance on the call.

Cautious Optimism, De-Risking, and Disciplined M&A

• Q3-Q4 FY 2026-2027 QoQ growth improvement is conditional — management affirmed sequential growth should improve versus Q1-Q2 FY 2026-2027 with margins improving in subsequent quarters, explicitly conditional on closing the losses and on gross sales/conversions, as the company carries little bench (Q2 FY 2026-2027 was an exception with higher-than-usual bench).
• Management cannot predict whether softer US compliance norms are transient or permanent — noting US regulatory relaxation/refresh cycles "may take some time to change" (no specific timeline given); the company is de-risking by building alternative growth engines in adjacent, simpler service areas.
• M&A pipeline: "the stars have not been aligned" — management has been evaluating assets but has not hit the target; it will continue looking at adjacent areas including the FCC space, financial services adjacent service lines, and healthcare (a vertical eClerx does not currently serve, called an "evergreen industry"); valuations have slightly come down from levels seen 12-18 months back.
• Deal discipline emphasized — capital is not a constraint, but any acquisition must demonstrate synergy potential ("1+1" alpha); management will not pursue inorganic growth merely to bring in revenue momentum for a quarter or two.
• New AI investments in continental Europe — apart from CLX, the high-end fashion and retail business, will start with AI-led offerings rather than traditional services, with ACV and revenue momentum to be built on these initiatives.
• Domain moat cited as differentiator — expertise built over 26 years serving top-quartile clients with relationships of 10-25 years, maintained through a technology-plus-people model despite industry attrition of 20-30%; management framed AI as an opportunity rather than a threat, positive on a medium-to-long-term basis.