HCL Technologies delivered robust Q2FY27 results with consolidated net profit rising 21.2% YoY to ₹5,132 crore and revenue growing 11.5% YoY to ₹35,620 crore. The company's operating margin expanded 131 basis points sequentially to 18.2%, significantly outperforming brokerage expectations. However, HCLTech shares closed at ₹1,321 on Tuesday, up 7% following the earnings announcement, with the stock being the top gainer in both Nifty 50 and Sensex. The company's market capitalisation stands at ₹3.32 lakh crore, reflecting mixed market sentiment despite strong fundamentals. HCLTech shares jumped 7% on Tuesday following the earnings announcement, with shares surging as much as 4.54% to hit an intraday high of ₹1,275.40 on Tuesday after the IT major reported better-than-expected results. IDBI Capital maintained its Hold rating on HCLTech Ltd. with an unchanged ₹1,380 target price, implying about 13% potential upside from the current market price of ₹1,220. However, LKP Research downgraded HCLT from BUY to HOLD with an unchanged target price of ₹1,360, valuing the company at 17x FY28E EPS, citing low-single-digit organic growth, macroeconomic uncertainty and the nascent risk of AI-led deflation as constraints on earnings visibility and valuation upside.
Sequential constant currency revenue grew 2.3%, which was below the consensus estimate of 2.7%, as reported by Systematix Shares and Stocks (India). The drag came primarily from the software business, which declined 5.8% CC sequentially, while services grew 3%. Management attributed the software decline to a lower number of multi-year licenses due for renewals compared to the previous year, noting that the revenue decline does not accurately reflect the underlying health of that business. Services revenue growth included inorganic contribution from HPE Telco Solutions and Jaspersoft. Despite healthy demand toward the end of Q2, management remained cautious about the outlook, with the second half for HCL potentially slower partly because the $1.14 billion Mercedes-Benz mega deal won in July could start contributing in Q1FY28. The anticipated weakness in top telecom accounts and a top manufacturing account has played out, with discretionary demand in telecom remaining uncertain.
Advanced AI revenue surged 78% year-on-year and 28.4% sequentially to $219 million, representing an annualized run rate of USD 876 million. As per Prabhudas Lilladher, these AI-led revenues derive 7-10% higher margins than traditional services. The adj. EBIT margin expanded 130 bps to 18.2%, versus the brokerage's estimate of 17.7%, aided by higher margin AI-led revenues and outperformance of ITBS. The real story is earnings quality, with management guiding to services margins 7-10% above traditional work and 70%+ gross margins on IP and platforms. EBIT margin guidance was retained at 17.5-18.5%, with incremental gains reinvested in growth initiatives. However, wage hikes may have a negative impact of 80 bps in Q3 and 60 bps in Q4, which HCL has already factored into the margin guidance.
Despite healthy bookings and pipeline, management remains cautious on the outlook and has largely maintained the organic growth guidance around the midpoint of the guidance band. HCLTech reported net new deal wins worth $3.3 billion, with total contract value (TCV) improving to $3.26 billion from $2.41 billion in Q1FY27, marking the second-highest deal wins TCV seen in Q2. The company also announced a Global Premier Partnership with Anthropic to accelerate enterprise adoption of agentic AI, focusing on safety, cybersecurity and governance. Management said the company recorded its second-highest-ever quarterly new bookings and its strongest first-half performance on record. The company declared a second interim dividend of ₹12 per share with October 16, 2026 as the record date. Inorganic contributions are expected to account for 87 bps of the services revenue growth guidance and 87 bps of the overall company revenue growth guidance.
The company raised the lower end of its constant-currency revenue growth guidance for FY27, while retaining its operating margin outlook. The company's overall revenue growth guidance now stands at 2.5%-4%, compared with the earlier range of 1%-4%, with services revenue guidance revised to 3%-4.5% against the previous range of 1.5%-4.5%. The EBIT margin guidance remains unchanged at 17.5%-18.5%. HCLTech reported a net increase of 6,450 employees in Q2 FY27, reversing the net reduction of 3,292 employees recorded in the June quarter. However, the company's attrition rate edged up to 12.8% from 12.7% in Q1 FY27. The revised ranges imply a 1.5–3.5% compound quarterly growth rate over Q3–Q4FY27, with Systematix expecting HCL to deliver above-industry growth in FY27. Inorganic growth could remain in the driver's seat for FY27, with the revised guidance including an estimated 87 basis points contribution from inorganic growth.
