HCL Technologies AI-led services, bookings and margins reinforce medium-term growth outlook
HCL Technologies Ltd.
BUY
₹1,223
₹1,332.1
₹1,435
17.33%
Investment View and Recommendation
Anand Rathi Research upgraded HCL Technologies to BUY from HOLD on October 13, 2026, following a strong Q2 FY27 performance. The broker’s conviction is based on accelerating, margin-accretive AI monetisation, the Anthropic Global Premier partnership, robust deal wins and improving operating efficiencies.
Anand Rathi believes these factors strengthen HCL Technologies’ medium-term growth and profitability outlook despite near-term macroeconomic uncertainty.
Q2 FY27 Financial Performance
HCL Technologies reported Q2 FY27 revenue of US$3.724 billion, up 2.3 per cent quarter-on-quarter and 2.6 per cent year-on-year in constant currency. Services represented 92 per cent of revenue and grew 3.0 per cent quarter-on-quarter in constant currency and 2.3 per cent organically.
Software revenue declined 5.8 per cent quarter-on-quarter and 11.2 per cent year-on-year in constant currency. The difference between 7.8 per cent HCLSoftware ARR growth, including Jaspersoft, and declining reported software revenue reflects the timing of multi-year licence recognition and the Jaspersoft acquisition. Organic software ARR growth was 2.6 per cent, indicating modest underlying growth.
Multi-year subscription licence revenue fell to US$39 million from US$81 million a year earlier because of fewer renewals, although a significant share of renewals is expected in FY28 and FY29.
| Q2 FY27 metric | Performance |
|---|---|
| Revenue | US$3.724 billion; up 2.3% quarter-on-quarter and 2.6% year-on-year in constant currency |
| Services revenue growth | Up 3.0% quarter-on-quarter in constant currency and 2.3% organically |
| Software revenue growth | Down 5.8% quarter-on-quarter and 11.2% year-on-year in constant currency |
| Organic software ARR growth | 2.6% |
| Multi-year subscription licence revenue | US$39 million versus US$81 million a year earlier |
Advanced AI Monetisation
Advanced AI revenue reached an annualised run rate of US$876 million after rising 28.4 per cent quarter-on-quarter and 78 per cent year-on-year in constant currency to US$219 million in Q2 FY27. Agentic AI quarterly revenue exceeded US$100 million, while AI Factory grew 64 per cent quarter-on-quarter.
Anand Rathi sees HCL Technologies moving beyond effort-based services towards proprietary intellectual property, platforms and outcome-led engagements. AI Force is being separately monetised in several large deals. The broker considers ecosystem partnerships and deployment capabilities a differentiated route to enterprise AI spending, while noting that sustaining superior margins depends on the evolving services and intellectual-property mix.
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Deal Wins and Inorganic Growth
New deal TCV was US$3.258 billion, up 26.8 per cent year-on-year, while trailing 12-month bookings reached US$10.607 billion, up 12.0 per cent year-on-year. This was HCL Technologies’ second-highest bookings quarter and its strongest first-half booking performance.
Over the previous year, HCL Technologies added one US$100 million-plus client, six US$50 million-plus clients, 10 US$20 million-plus clients and 33 US$10 million-plus clients.
The company completed the HPE Telco Solutions Group acquisition, which added US$21 million of revenue over two months, while Jaspersoft contributed US$15 million in Q2 FY27. Total inorganic contribution was US$35.6 million, supporting sequential company revenue growth by 97 basis points.
Margins and Management Guidance
Q2 FY27 EBIT margin expanded 130 basis points quarter-on-quarter to 18.1 per cent. Margin drivers included Project Ascent and AI-led efficiencies, higher-margin Advanced AI services, SG&A operating leverage and favourable foreign exchange. These benefits were partly offset by restructuring costs and the HPE Telco acquisition.
Management raised FY27 constant-currency revenue growth guidance to 2.5 per cent to 4.0 per cent from 1.0 per cent to 4.0 per cent. Services guidance was set at 3.0 per cent to 4.0 per cent, while EBIT margin guidance remained 17.5 per cent to 18.5 per cent.
Management expects Services growth slightly above the midpoint and a seasonal software revenue step-up in Q3. The Mercedes-Benz mega deal is expected to contribute from Q1 FY28.
Estimates and Valuation
Anand Rathi revised its FY27, FY28 and FY29 revenue estimates by minus 0.1 per cent, plus 1.2 per cent and plus 1.2 per cent, respectively. Adjusted EPS estimates were raised by 2.8 per cent, 3.5 per cent and 2.0 per cent, respectively.
| Estimate revision | FY27 | FY28 | FY29 |
|---|---|---|---|
| Revenue estimates | -0.1% | +1.2% | +1.2% |
| Adjusted EPS estimates | +2.8% | +3.5% | +2.0% |
Anand Rathi’s Rs1,435 target price implies about 17 per cent upside from the CMP. At the CMP, the stock traded at FY28E and FY29E price-to-earnings multiples of 15.1 times and 14.1 times, respectively.
Key Risks
- Continued discretionary-spending pressure among two large telecom clients and manufacturing clients.
- AI-driven productivity deflation exceeding AI monetisation.
- Slower organic software growth.
- Continued AI investment limiting sustained margin expansion.
Disclaimer: This is a summary of a research report published by the broker/research house identified above. The views, recommendations, target prices and estimates are those of the respective broker and do not represent DSIJ investment advice. The summary may be AI-assisted, hence please refer to the original report for complete details, disclosures and risks.
