Hello everyone and welcome to HCLTech's Q2 FY26 earnings press conference. I am Nitin Shukla and I'm your host for today's session. From the HCLTech Leadership team, we have with us Mr. C. Vijayakumar, CEO and Managing Director, Mr. Shiv Walia, Chief Financial Officer, and Mr. Ram Sundararajan, Chief People Officer. I will now hand it over to Mr. C. Vijayakumar.
Good evening everyone and thank you for joining us virtually today for HCLTech's Q2 earnings announcement. This was a strong quarter for us with broad-based growth, expanding margins, and exceptional bookings. We are seeing the results of our strategy come to light and I'm proud of how our teams are executing and winning. Our revenue grew 2.4% sequentially as well as 4.6% on a year-on-year basis in constant currency. Our advanced AI revenue this quarter exceeded the $100 million mark, representing approximately 3% of our revenue. Our operating margin came in at 17.5%. Our margins grew 116 basis points sequentially and is a result of the recovery plan we had shared with you last quarter. This quarter we clocked in a booking of $2.6 billion, which was well balanced across service lines, geographies, and verticals. This is the first time we've crossed the $2.5 billion mark without any mega deal.
We also signed two large deals which we mentioned were delayed last quarter. We grew our employee base in line with the demand that we are seeing and we continue to grow our revenue per employee as we leverage AI in everything that we do. I am also very proud to share that TIME Magazine recognized us as the highest ranked India headquartered technology company for the second consecutive year in the World's Best Companies 2025. TIME Magazine also recognized us as one of the world's most sustainable companies. Coming to AI, this quarter we reached a major milestone of generating over $100 million in advanced AI revenue through our diverse service lines and IPs. Our advanced AI revenue has a healthy spread across services and software. Credit goes to our exceptional teams across the company and our leadership for achieving this important milestone.
Our people are embracing the transformation from a people-based business towards a model that seamlessly blends AI IP with human-in-the-loop capabilities. Over the past few years we've made significant investments in building intellectual property, deepening partnerships, and strengthening our GTM and delivery teams. These efforts are now yielding results as we transition from AI pilot to AI monetization phase. As we have called out in our investor release, advanced AI revenue includes all the revenue from rapidly evolving technologies like Agentic AI, Physical AI, AI Engineering, AI Factory, etc. To clarify further, this excludes classical AI data and analytics services and services delivered using GenAI and AgentIQ AI. Our achievement is an outcome of a strategy and as we have shared before, our strategy is very clear and focused on shaping the future of our business and the industries that we serve. There are four key components of this strategy.
First, we are proactively transforming our services with a long term view and the confidence to evolve even if it means disrupting parts of our existing revenue base. This mindset keeps us agile, relevant, and future ready. The second element is our continuous investments in differentiated intellectual property that accelerates and scales AI adoption for our clients. While companies like OpenAI, the tech OEMs, and hyperscalers continue to advance the core intelligence layer and the computing needed for this, our opportunity lies in making that intelligence enterprise ready and impactful at scale. We are developing IP that powers transformation across IT, SDLC services, Engineering and BPO services, as well as industry specific use cases built on top of that intelligence layer.
The third element, we are expanding into new AI-led services which includes AI Engineering, AI Factory, and AI Advisory, and these services leverage a strong foundation in engineering infrastructure and our deep industry expertise. The fourth element, we're strengthening and expanding our AI partnerships across the entire technology stack from GPU providers to model and agentic platform providers. These partnerships are instrumental in helping us deliver impactful end-to-end AI solutions that drive real business outcomes for our clients. Talking a little bit more about bookings, this was a notable quarter where we clocked $2.6 billion of new bookings without mega deals. This exemplifies the robust sales engine we have built over the last few years across the globe to address the client needs across various service lines. Our bookings exclude rate card deals and renewals.
We emphasize more on the new bookings metric which generally has a strong correlation with revenue growth typically observed with a one to two quarter lag. Nearly all deals include AI and our comprehensive suite of AI offerings was instrumental in securing multiple large strategic wins. We've been growing strong in BFSI, technology, and telecom and media verticals. We see a similar trend emerging in our retail and CPG market vertical that should help us grow in the future as well as diversify our portfolio. We continue to win and grow in our retail and CPG business as clients show intense interest in a prudent approach to scaling AI. A couple of areas in retail and CPG where we are seeing traction include the integration work in M&A or carve-out related separation work and in large scale SDLC transformation work supported by GenAI, specifically our AI Force platform.
We are seeing similar trends in life sciences and healthcare as well as in public services, which for us includes energy and utility public services and travel, transportation and logistics. While the broader manufacturing segment is doing fine, there is continued impact due to auto sector slowdown. Coming to the recent H1B visa fee revision and its potential impact on us, over the years we've made conscious efforts to reduce our reliance on visas by strategically strengthening our global delivery model. In Q1 this financial year, Forbes recognized us as one of America's Best Employers for New Grads 2025, underscoring the success of our approach towards fostering innovation, career growth for early professionals and the talent readiness initiatives. Overall, we intend to increase our local hiring and training to enhance our localization.
Now coming to our guidance, on the back of a strong quarter and sustained growth momentum, we are raising our full year services revenue guidance to 4 to 5% in constant currency from the earlier 3 to 5% in constant currency. Given the softness in the software segment, we are keeping the company level guidance unchanged at 3 to 5% in constant currency. We remain on track to deliver our full year EBIT guidance of 17 to 18%. With this, I invite Shiv to walk us through the financial details.
Thank you, CVK. Good evening, everyone. Thank you for joining our Q2 financial year 2026 earnings call. Let me walk you through our financial performance for the quarter, starting with the revenue performance. Total revenue for the quarter is INR 31,942 crore, which is a growth of 5.2% quarter on quarter and 10.7% on a year on year basis. Coming to the services side, services revenue came in at INR 29,116 crore, which is a growth of 5.4% quarter on quarter and 11.6% on a year on year basis. Software revenue for the quarter came in at INR 2,923 crore, which is a growth of 3.4% quarter on quarter and 2% on a year on year basis. Let me share the details on profitability now. Our EBIT came in at INR 5,550 crore at 17.4% of revenue. Net income for the quarter is INR 4,235 crore at 13.3% of revenue.
Moving on to Return on Invested Capital (ROIC), our ROIC continues to improve thanks to our ongoing focus on profitability and efficient capital management. The last 12 months ROIC is at 38.6% for the company, up 290 basis points year on year. Services ROIC is now at 45.3%, up 180 basis points year on year. Software continued to improve with ROIC at 21.8%, up 396 basis points year on year. Let me now share the details on our strong cash generation this quarter. Our cash generation remains very strong. Over the last 12 months, operating cash flow reached INR 22,522 crore, while free cash flow generation was INR 21,256 crore. Our balance sheet remains healthy and strong with gross cash at INR 31,570 crore and net cash at INR 29,211 crore.
Operating cash flow to net income conversion is healthy at 133%, and free cash flow to net income conversion is at 125%. This cash generation is on the back of our continued improved DSO performance. Our total DSO, including unbilled, is currently at 78 days, improved by 4 days quarter on quarter and by a day on a year on year basis. Now for our shareholders, the diluted EPS for the last 12 months came in at INR 62.57, which is up 0.09% year on year. The board has declared an interim dividend of INR 12 per share for the quarter. The record date is 17th of October 2025, and the payment date of the same shall be 28th of October 2025. That brings our last 12 months payout to INR 60 per share, effectively distributing 95.7% of our net income. That's all from my side for now.
I would like to hand over the discussion to Ram for an update on HR matters. Thank you.
Thank you, Shiv. Good evening everybody. We ended the September quarter with total people strength of 226,640. That's an increase of 3,489 from last quarter. That's a 1.6% increase, which in comparison to the 2.4% revenue growth that we have reported, you will see that the increase in revenue per employee, which CVK alluded to. During this quarter, we also added 5,196 freshers. That's more than double the number that we added in the same quarter last year. If you look at the total number of freshers that we've added during this year, AMG quarter and the JAS quarter, that's 7,180. We started the year with a plan that we will do a significantly higher fresher addition this year compared to last year. If you look at what we have done during H1, that's almost 92% of what we did in the entire year last year.
We are on track to do what we had planned to do for this year in terms of our fresher additions. Our attrition for this quarter came in at 12.6% voluntary LTM. That's a 20 bps reduction from last quarter, and it's a 30 bps reduction from JAS of 2024. Given the strong performance that we've had this quarter, we have gone ahead and made a decision to roll out the increments, which will be effective from October. We'll follow the same process as we did last year in terms of how we go about running the increment process. In addition, this time we have also taken a decision to move the quarterly variable pay and convert that into fixed pay and merge it with fixed salary for all our employees.
These are two significant decisions that we have made to support our employees who are making the contributions that we are able to deliver the results that we are delivering. With that brief, we'll open the floor for questions.
Thank you, Ram. We'll now move into the Q and A segment. Please follow these instructions. To ask a question, for people joining on the Webex mobile app, tap the three dots on the floating panel and select the raise hand icon. For people joining on desktop, click the raise hand icon at the bottom right of the participant panel. For people joining as audio only participant, please press star three to raise your hand. Our first question is from Jasper from Mint. Jasper, please go ahead and ask your question. Jasper, can you hear us? Jasper, please go ahead and ask your question.
Hi, am I audible?
Yes, loud and clear. Please go ahead.
Okay, right. Good evening folks. Just two quick questions. With peers announcing an entry into building data centers, what does this mean for HCLTech's AI strategy considering it's traditionally had a good strength in the infrastructure space? Second, when you say that you got a good amount of your deal bookings without any mega deals, does this mean a time when mega deals would not be needed as much to probably shift the revenue needles? That's about it.
Yes. I wouldn't like to comment on what our peers are doing on building data centers and things like that. Everybody has a certain strategy and they're implementing. From our perspective, we are very focused on two broad elements in AI. One is of course building intellectual property, which is the companies like OpenAI and tech OEMs and hyperscalers. They're really investing and enhancing the intelligence layer.
Now we see a tremendous opportunity to build IP to make that intelligence layer relevant and scalable for enterprise clients. This is where we are investing. We have created already a significant number of IP, which is serving as a big differentiator for us. That is really coming from our engineering heritage and the software heritage. We are trying to double down on that. The second of course is all the solutions on agentic AI, physical AI. There is a huge opportunity to implementation and operational services for some of the data centers, which is what is now called as AI Factory. We are already working with the top 10 tech company in the world as a part of their build and operate strategy. We have AI Advisory, we have industry AI solutions which are customized like Insight Gen and Netside Payment X, Talent Navigator, VisionX.
There are multiple solutions and IPs that we are investing in and newer services is also something we are focusing on. The second strategy is really proactively transform our existing services landscape without worrying about its impact on the, if it is going to impact some of our revenue streams. We are less concerned. We are really wanting our services to be more future ready and that is the outlook and mindset we are driving. That's really what I wanted to share on our strategy. The second question is without a mega deal we closed $2.5 billion. I think it's a good thing. I mean it's a very broad-based momentum. Mega deals have their own ups and downs and all of that and we are happy that we could deliver a strong, in fact a landmark booking of $2.5 billion, $2.6 billion without any contribution from mega deals. Thank you.
Thank you, CVK . Our next question is from Srishti from The Economic Times. Srishti, please go ahead and ask a question.
Hi. Hello. I have a quick question with regards to, I want to know what was the reason people and the non p eople restructuring impact that you had, which you did mention last quarter as well. You talk about a 55 bps impact on, you know, restructuring cost this time. I wanted to know what entails that.
Yeah, it's got both. Yeah, Shiv, you want to take it? Please go ahead.
Yeah, this entails both people as well. As we announced last quarter that, you know, we do have a skill and location mismatch, that's what we are trying to address here. As well as linked to some past equation, we need to do some facilities, restructure those facilities. It is a combination of both people addressing the location and skill mismatch as well as some of the facilities which we need to address and to optimize. Put together, both in this quarter, we have an impact of 55 basis points.
Could you give a bit of clarity? On what that exactly entails with regards. To what did the restructuring impact include?
No, that's as I mentioned, is 55 basis points for this quarter. It's a combination of both people and non-people put together.
Right. Thank you.
Thank you, Shiv. Our next question is from Veena Mani from the Times of India. Veena, please go ahead and ask a question. Veena, can you hear us?
Why did you decide to discontinue the variable pay, and what approach will you be taking in place of the variable pay, and how will you be rewarding your people based on their performance each quarter?
Variable pay, we've had two parts to variable pay. One is for the vast majority of our people who are working on projects. We had the variable pay which is linked to project level performance matrices. That's distributed quarter on quarter. That part is what we have merged with the fixed pay so that it gets paid as a fixed pay monthly. We do have the annual performance bonus and that practice will continue. If we are looking at how do we tie pay to performance, there's the annual performance bonus component that is there, which practice will continue.
This is for all levels of employees, not junior or senior. Typically, what happens is that the junior employees' pay is not linked to the performance, but for seniors, as you grow up the ladder, it is.
The quarterly performance linked variable pay was largely applicable to only the junior level employees, and they will be the beneficiary of this policy change. The senior level employees continue to have their annual performance bonuses, and that will continue.
Okay, thank you.
Thank you.
It’s essentially benefit all our junior colleagues.
Thank you, Ram. Our next question is from Debangana from Moneycontrol. Debangana, please go ahead and ask a question.
Hello. Hi. Am I audible?
Yes, loud and clear.
Yeah, just have two questions. Wanted to understand more about the fresher addition in H1. I think it's more than 7,100. Like Ram mentioned, how much of it is going to be from the elite cadre like it was announced last quarter? Also, what's the update on the overall restructuring? I mean, can you give us, because last quarter HCLTech had mentioned that some talent ramp down is expected and obviously you mentioned that there is a skill and location mismatch. Can you share some numbers around it? Can you give some colors around how this is expected to play out into FY26?
I'll take the fresher hiring question first. This quarter, as I said, we added 5,196 freshers. H1 last quarter and this quarter put together is 7,180. If you look at that number in comparison to what we did on a full year basis last fiscal, that was 7,829. That's the reason I said that, you know, we've done more than 90% of what we did last year. We have done it in two quarters. That's in line with the plan that we had for this year. We did set out a plan that our fresher intake this year is going to be significantly higher than what we did last year. That's happening to plan. As far as restructuring is concerned, I think Shiv already responded to that. Our restructuring plan included both people as well as non-people. The people part, again, Shiv already alluded to that.
It's the location-skill mismatch as well as some of the businesses that we have acquired. We had to look at it from an efficiency measures point of view. Those are the actions that we have taken during the course of this quarter. The combined effect is what is the impact that you see on the P&L.
Exercise in Q2 and will continue in Q3 and may spill over to some to Q4 also because we are dealing with some country-specific nuances. These things take time. That's what we expect. On a full year basis, maybe slightly on the higher side, you know, of the 40 basis point impact we announced last quarter. That's what we think is going to happen.
On the elite cadre, if you could give us a sense of how much of the new H1 fresher hiring will be from the elite cadre.
It's about 18%. I indicated that last time as well. Our current trend is the 15% to 20%. This quarter I think it's about 18%. As I said, our focus is not going to be on numbers. We are focused on specialization. We don't have any target set for that. We go based on the merit of the candidates that we are able to onboard.
Got it. Thank you.
Thank you. Thank you, Ram. Our next question is from Hari Priya from Reuters. Hari Priya, please go ahead and ask a question.
Hello. Hi. Am I audible?
Yes, you are.
Okay. Good evening, gentlemen. I just had two quick questions. One, I just wanted to get a sense of what the overall demand environment has been like because we're still hearing that things are soft, and you know, things haven't really picked up. If you could give some color on the various segments and what you're seeing in each of them, and also just want to understand what was behind the Engineering and R&D Services performance as well. Is that growth because of Volvo or any particular reason that you could call out? Thank you.
Overall demand environment is more or less similar to what we saw in the last quarter. If I were to just see the areas which are looking a little better, like we had already called out financial services and tech as verticals where we see good growth momentum. In the last few weeks, our pipeline has increased, our bookings have increased, and we also expect good bookings in the coming quarter as well. All of that reflects that we have an all round momentum. The only area which is soft is the auto segment, which we feel is still struggling. All others we feel good at this time.
Is there a discretionary pickup as well? Is that still a ways away, and how do you expect the next two quarters to pan out?
I think discretionary spend in certain pockets are almost becoming mandatory. There are so much of mergers, acquisitions, carve-outs, at least in the client base that we have and the opportunities that we have, all of them are transformation projects which are definitely picking up. Another big thing which is growing is legacy modernization enabled by AI and our own AI Force platform. In fact, one of the large retailers in Europe, we won a program for modernizing their order management which is really driven around the developer productivity improvements that we can get through our AI Force platform. I think in certain pockets we are still seeing good sizable opportunities which could be discretionary in nature, but they are getting a little more bold to execute them because of AI and some of the efficiencies that you can get in implementing it.
More important than the efficiency, the timelines with which they can complete is a big motivator for some of the clients to take this up.
Final question for me on the AI revenue bit, I wanted to understand how you, now that you started calling it out, what do you see the trajectory of this and how do you think it'll be?
Yeah, I think this is going to be a good trajectory because we see, I mean in everything that we've categorized as advanced AI, it's really where a lot of customers are spending money. You talked about discretionary spend, but a lot of discretionary spend is happening on AI because customers have invested in solutions and capabilities and they really want to make them work and scale within their enterprise. That's where a lot of our services are coming. I see a strong growth potential for our advanced AI services. It's still about 3% but I expect this to grow because there is a lot of AI Factory requirements, a lot of inferencing, silicon design and validation requirements. I think all of this plays very strongly into our traditional strengths.
A number of industry domain solutions that we have built, both our own AI solutions for industries and custom AI solutions. All of them are looking good. The icing on the top of the cake is really the IP that we have built like AI Force is now integral to almost every deal where we are taking ownership of the IT ops or SDLC lifecycle and all of that has a certain license revenue associated with it.
Thank you, CVK. Our next question is from Balasubramanyam from Analytics India Magazine. Please go ahead and ask your question. Can you hear us? Audible? Yes, you are.
Hi. I just wanted to understand the kind of pricing models HCLTech is deploying. When it comes to AI solution, it's o ffering to its clients. Is it one particular model or various? Or a combination of other things? Thanks
It's a very, very good question. I think the industry itself is evolving to really kind of narrow down on one or two pricing models. At a high level, all that I can say is we have certain IP which is getting licensed as a part of our regular pricing. That's one. The second is really the impact that we can create, which is really more the outcome-based solutions. There is also a stream of thinking which is more value sharing. If you are going to do an SDLC transformation for a thousand people, software development team, and if you are able to deliver 25% productivity, then there is a way to share the value that is created or there is a share of improved velocity that we are creating. Some of that can be monetized.
We are trying out several models and maybe in the next couple of quarters it will settle down. I think clients are also trying different models at this point. I don't think there is a clear direction. Various models are being tried and we are also offering different models.
Thank you.
Thank you CVK. Our next question is from Rukmini Rao from Fortune. Rukmini, please go ahead and ask a question. Can you hear us?
I can hear you. Can you hear me?
Yes, sure.
Thank you. CVK, you did speak about all the tremendous amount of money being poured into the hyperscalers. The sort of investment that we are seeing in the U.S. for companies like you, how will it translate in terms of, say, the profitability or beyond that, enhancing the efficiency of AI on the monetary part? How do you think this will play out, and if costs are going to go down, by what time are you expecting this to happen, CVK? The second one, if we are looking at, you know, the revenue chunk, percentage of revenue coming out of geographies, U.S. on a year-on-year has seen it decline 2% plus. What sort of clients in the U.S. essentially are probably holding out on the spends, or where is, which pocket is the uncertainty more?
Also, the $10 million and the $20 million revenue bucket clients that have gone up, is this sort of, how do we read this as an indication of smaller deal size, is what is going to be some sort of, you know, the normal in a very volatile macro environment? Just your thoughts on all of this. Thank you.
Yeah, I'll try and answer all your questions. Let's start with the lot of investments that are happening for AI hyperscaler infrastructure and things like that. I think here our biggest opportunity is what we called out as AI Factory where we are really playing a significant role in the design and implementation of these data centers. There is a little bit of operate revenue coming from here. I think this can be very, very large. We're already seeing we are working with one of the top 10 players as a part of their entire AI Factory rollout. The second question you asked is U.S. revenue has grown, if you see by geography, which is really our IFRS reporting, it has grown
As a percentage o f revenue for you, CVK that has gone down.
Okay, okay. As a % of revenue, yes. Again, this IFRS revenue mix is also based on really built to country, so it's got—it's very difficult to kind of put any specific reason. If you want to really have a leading indicator, our bookings are quite well diversified across U.S., Europe, and Asia Pac. It's a little bit more in Asia Pac, but still a very strong booking in U.S. and Europe. I don't see any particular skew there at this point in time. The third question you asked is about the client categories $20 million and $10 million. Yes, sometimes you win mega deals, they directly land in your client pyramid as $100 million revenue. If you are doing $100 million, $200 million deal, they end up becoming on an annualized basis $20 million, $30 million in size. That's what you're seeing.
Current growth in our $20 million and $10 million clients is really coming from our cross-sell and upsell capabilities. Now we have an integrated go-to-market organization. Our front-end GTM organization can sell all IT and Business Services and Engineering and R&D Services, and we are seeing some impact of that with customers in $10 million, $15 million moving to about $20 million and things like that. This is really coming from a very organic build out of the sales engine that we have.
Just to add, that mix change in the U.S. is primarily linked to the CTG revenue which came in from Q4 onward, and that was in Japan and Europe. Heavy equation that revenues most of it.
Thank you.
Yeah.
Thank you. Shiv from Times of India has a question for us again. Veena Mani, please go ahead and ask your question.
Hi, a couple of one clarification. Ram, you talked about people restructuring. Now are we looking, are we talking about layoffs here? People have been sacked. If so, how many people? Because that number is not reflected in the net additions. Also, Shiv, if you can help us with the margin breakup, and CVK, you talked about the AI revenue. Now are we looking at these as like final projects, not just, you know, just experiments? Also, how are they different from the regular AI-led projects that the company has been talking about?
I think AI-led projects, see there is a lot of services that we deliver using AI that is not classified as advanced AI revenue, and we are seeing a lot of pilots moving into larger programs. That is what is one of the scaling reasons for the advanced AI revenue. On the people front, Ram, do you want to take a shot?
Yeah. I think we did talk about our restructuring. On the people side, it's largely the skill location mismatch. It's not a capacity reduction agenda. It's basically rebalancing the demand supply when it comes to skills and locations. Some of it is also through the acquisitions that we have had over the years. It's spread out across multiple countries, small numbers across several countries. It will not be right to just call out one number and say that this is the number. It's spread out across the countries and it's not a capacity reduction agenda. I think that's the most important thing. It's rebalancing the capacity that we have with reference to skills and the demand in the locations that we need. It's going to be an exercise.
Sorry, no one's been sacked. I mean, we're not talking about people being given the pink slip because of a skill mismatch.
There will be some reductions. When you're trying to restructure, there will be some reductions, but those are all managed through the regular process that we go through. Right.
It goes through a reskilling exercise, it goes through a redeployment exercise. In some instances, there will be some actions that need to be taken. As I said, if it is a concentrated effort in one particular pocket at one given point in time, it probably is worth getting into the specifics of what it is. This is something which is done across so many different countries, and it's on the back of actions that are taken for reskilling and redeployment. In instances where that exercise is not as effective as it has to be, there will be some actions that we'll have to take.
I think you have to interpret all this in the context that our overall headcount has increased. Right. We are hiring, we've hired nearly 4,000 people, incremental net additions from last quarter to this quarter. Our fresher hiring is also quite strong. I think it's just a, overall, we continue to have a strong growth story.
Thank you, CVK. Thank you, Ram. This brings us to the last question of the day. Our last question is from Vikas Tripathi from Outlook Business. Vikas, please go ahead and ask a question.
Hey, am I audible?
Yes, you are.
I just wanted to understand in IT sector M&A deals are going. Several M&A deals, we have heard about them. Are you guys also planning to do that? Do you see areas of investment you want to focus on? Is AI one of those areas? We want to add some t echnical skills, systems?
Yes. I mean we don't have big acquisition plans, but definitely capability additions is something we look at. AI is definitely a priority area there as well.
Got it, thanks.
Thank you.
With this, we'll now wrap up the press conference. A recording of this webcast will be available shortly on the HCLTech website. Thank you all for joining us today. Stay safe and take care. Thank you.