HCL Technologies Q2 FY27 Earnings Call: Trims Top End of Services Guidance, Record $3.3B Deal Bookings (HCLTECH)

HCL Technologies Ltd held its Q2 FY27 earnings call on October 12, 2026. Here's a quick read of what management said — performance, strategy, and the outlook ahead.

Solid Quarter with Margin Expansion Across the Board

• Total revenue of $3,724M — up 2.3% QoQ and 2.6% YoY in Q2 FY 2026-2027; services revenue of $3,442M grew 3% QoQ (organic 2.3-2.4%) and 4% YoY.
• Net income of $538M — a 14.4% margin in Q2 FY 2026-2027.
• Adjusted EBIT margin of 19% — excluding 84bps of restructuring charges, up from 17.5% in Q1 FY 2026-2027; reported EBIT margin of 18.2% expanded 131bps QoQ and 71bps YoY, driven by higher-margin AI revenue and AI-led operational gains.
• Margin bridge of ~123bps — Project Ascent/AI efficiencies contributed 73bps and SG&A operating leverage 50bps in Q2 FY 2026-2027; management attributed 32bps of the improvement specifically to advanced AI services.
• Software revenue declined to $294M — down 5.8% QoQ and 11.2% YoY in Q2 FY 2026-2027, on lower multi-year license renewals ($39M vs $81M in Q2 FY 2025-2026); inorganic contribution added 97bps to sequential services growth.
• Strong capital returns — Q2 FY 2026-2027 interim dividend of Rs.12/share declared; LTM payout totals Rs.60/share, or 88.6% of net income.

Record First Half, But Discretionary Spend Uncertainty Persists

• New deal bookings of $3.3B — up 27% YoY and 35% sequentially in Q2 FY 2026-2027, making H1 FY 2026-2027 the strongest first half ever.
• Client additions YoY — 1 client in the $100M+ bucket and 8 in the $50M+ bucket; management also cited YoY (FY 2025-2026 vs FY 2026-2027) additions of 100 million, 50 million, 20 million and 10 million client buckets as evidence of strong upselling.
• Ramp-downs in three top-20 clients — two telco customers under discretionary spending pressure and one manufacturing customer; management said the ramp-downs factored into FY 2026-2027 guidance have "already played out", though uncertainty around discretionary spend in the two telco customers remains.
• Two largest recently won AI deals were single-sourced — per CEO C. Vijayakumar; the AI Force platform is now a specific revenue line item in large deals.
• Pipeline remains strong — but management flagged that the demand environment is fluid and remains cautious.

Advanced AI Scales Rapidly, With Emerging Non-Linearity

• Advanced AI revenue of $219M — up 28.4% QoQ and 78% YoY in Q2 FY 2026-2027; annualized run-rate at $876M.
• Agentic AI offerings crossed $100M per quarter — in Q2 FY 2026-2027; the AI factory proposition grew 64% QoQ.
• Non-linearity emerging from AI Force integrations — with OpenAI and Anthropic, where pricing includes token costs, while core enterprise AI work remains services-led, per CEO C. Vijayakumar; frontier model partnership revenue is currently a small but well-growing number, and management does not precisely track ecosystem partner revenue as a percentage of total.
• Advanced AI margin structure for FY 2026-2027 — management outlined an IP/Platform component with gross margins above 70% and a services component with margins 7-10% higher than traditional services.
• Deal structures differ by engagement type — operating model transformation (OMT) engagements are signed on a fixed-price basis, while agentic implementations are largely time and material.
• Competition in advanced AI varies by segment — boutique providers for enterprise implementation, service providers for chip design/agentic AI, per the CEO.

Revenue Decline Misleading; ARR Growth Is the Key Metric

• ARR of $1.134B, up 7.6% YoY — despite software revenue declining 5.8% QoQ and 11.2% YoY in Q2 FY 2026-2027; management clarified the ~15% YoY revenue decline is misleading, with ARR up 2.6% YoY ex-Jaspersoft and 7.8% including Jaspersoft.
• Disconnect driven by license recognition dynamics — fluctuating perpetual license revenue and upfront recognition of multi-year licenses (~60% of a 3-year license recognized upfront); management guided that multi-year renewals will return in FY28 and FY29.
• Software margins expanded sequentially in Q2 FY 2026-2027 — aided by absence of Q1 FY 2026-2027 restructuring costs, employee expense optimization, and lower amortization; management plans to continue rationalizing costs aligned with the growth outlook.
• Portfolio pivot underway — management is shifting the software portfolio towards intelligent operations and a modern data/AI stack.
• HPE Telco Solutions Group (Aruba TS) run-rate — the lower run rate reflects a two-month impact; extrapolating to three months provides the correct run rate, with no major seasonality cited.

Headcount Growth With Improving Productivity

• Headcount of 230,339 — as of Q2 FY 2026-2027 end, with a net add of 6,450; attrition at 12.8% LTM and revenue per employee up 2.4% YoY.
• US Department of Labor decision to suspend the perm program — management stated it is not expected to materially impact talent plans or client engagements.
• Strategic investments announced — completed acquisition of HPE Telco Solutions Group; announced an AI data center in Bhubaneswar and a GTC in GIFT City; invested Rs.185 crores in a semiconductor lab in Bengaluru.
• LTM ROIC of 41.2% — up 261bps YoY; LTM free cash flow of $1.78B (87% of net income).
• FCF conversion weakness attributed to one-time items — CFO Shiv Walia cited a BAPA tax payment (government-to-government transfer pricing) and a shift to an external gratuity trust; he guided FCF conversion to revert to 100%+ stable as these one-offs roll off.

FY 2026-2027 Guidance Trimmed at the Top End; H2 Deceleration Explained

• Revised FY 2026-2027 guidance — overall company revenue growth of 2.5-4%, services growth of 3-4% in constant currency (organic midpoint unchanged), and EBIT margin of 17.5-18.5% (including restructuring charges); guidance includes impact of acquisitions.
• Top end of FY 2026-2027 services growth guidance trimmed — despite 4% YoY CC growth in Q2 FY 2026-2027, citing a volatile global environment; management expects services growth to land "slightly above the midpoint" of the revised range, with Q2-Q3 FY 2026-2027 boosted by a software step-up.
• H2 FY 2026-2027 services revenue deceleration — management attributed this partly to mega deal revenue shifting to Q1 FY 2027-2028.
• Q3 FY 2026-2027 execution plan — management guided a strong execution plan for Q3 FY 2026-2027, historically the strongest quarter, with confidence in delivering a good outcome; CEO C. Vijayakumar said FY 2026-2027 guidance is well-informed by internal business factors and the external environment.
• Medium-term margin aspiration of 18-19% — management is cautious about committing to this band given industry changes and prioritizes investing in capability/differentiation over margin optimization.