Strong Q2 performance, services guidance upgrade positive for HCLTech

HCL Technologies posts steady Q2FY26 growth with $2.6B net new deals, AI revenue hitting $400M, and margin at 17.4%, while EPS stays flat at Rs 15.6

HCLTechnologies’ (HCLTech) Q2FY26 performance was strong across most parameters.

 

Revenues grew 2.4 per cent sequentially on a constant currency basis with the core services segment up 2.5 per cent.

 

In software, growth was better in annuity revenues, such as subscriptions and support, though perpetual licences dragged.

 

Margins were at 17.4 per cent. Net new deal wins were $2.6 billion, up 16 per cent year-on-year (Y-o-Y) ($1.8 billion in Q1FY26) with two large deals.

 

The growth in top 10 accounts was below the overall company growth at 1.5 per cent quarter-on-quarter (Q-o-Q).

 

The earnings per share (EPS), at ₹15.6, was flat Y-o-Y.

 

Advance artificial intelligence (AI) revenues, disclosed for the first time, are clocking $400 million in annual recurring revenue.

 

HCLTech is focussed on AI with strengthened go-to-market, AI advisory and expanded partnership ecosystem while staying asset light. This has helped win deals, sometimes at the expense of core services.

 

HCLTech is confident of stepping up quarterly net new total control value (TCV) run-rate to $2.5 billion plus (from current $2 billion) which should offset this effect.

 

The revised services guidance is 4-5 per cent revenue growth in constant currency (from earlier 3-5 per cent) but the consolidated revenue guidance is unchanged at 3-5 per cent. Increased research and development (R&D) spend and the mix change (lower software growth) may pull down margins. 

 

HCLTech clarified that demand conditions remained largely stable versus Q1FY26. It sees continued momentum across all key verticals except auto.

 

The company has made significant strategic investments reaching $100 million in advanced AI revenue, which contributed 3 per cent to Q2 top line. The strategy is to invest in intellectual property, deeper AI-related partnerships and strong go-to-market delivery teams to scale up AI adoption for clients.

 

HCLTech software's annual recurring revenue (ARR) is $1.06 billion, up 0.6 per cent Y-o-Y. The focus is on subscription revenue, which is a more sustainable value than perpetual licence. The AI strategy hinges on making AI enterprise-ready at scale, rather than building a core intelligence layer. There is focus on differentiated Intellectual Property (IP) which accelerates AI adoption with new offerings, including AI Factory and AI Advisory.

 

HCLTech is strengthening and expanding AI partnerships across the stack, from GPU providers to model and agentic platform providers.

 

Demand elasticity is strong in modernisation, with several large legacy modernisation programmes (close to $100 million plus) coming up. The target is to raise net new bookings run rate from $2 billion to around $2.5 billion.

 

The company logged return on invested capital (RoIC) in the last 12 months at 38.6 per cent, up 290 basis points (bps) Y-o-Y while services RoIC is at 45.3 per cent, up 180 bps and software RoIC is at 21.8 per cent. There is an interim dividend of ₹12 per share for Q2FY26.

 

Q2FY26 operating profit margin, at 17.4 per cent, was up 110 bps Q-o-Q.

 

In the services business, operating profit margin improvement of 80 bps Q-o-Q was driven by higher utilisation. Continued restructuring cost of 55 bps was largely offset by currency gains of 50 bps.

 

The management noted that salary hikes would happen in Q3 and Q4. The AI drive needs continued investments in R&D activities and IP accelerators.

 

The stock trades at a moderate valuation of around 22 times the projected FY26 earnings per share.

 

Most analysts seem to be positive on the stock and the share price trended flat after some intraday volatility.