Hi. Good evening, everyone, and welcome to HCLTech's Q2 FY 2027 earnings press conference. I am Nitin Shukla, your moderator for today. Joining us from the HCLTech leadership team are Mr. C. Vijayakumar, CEO and Managing Director, Mr. Shiv Walia, Chief Financial Officer, and Mr. Ram Sundararajan, Chief People Officer. Thank you all for joining us today, sirs. I will now hand over to Mr. C. Vijayakumar for his opening remarks.
Thank you, Nitin. Good evening, everyone. Thank you for joining us today for our Q2 FY 2027 results. We delivered a strong quarter. Let me start with some highlights of our performance. First, our advanced AI business continues to scale rapidly and is becoming a key growth driver for us overall. Our new bookings were the second highest in our history, and it was the strongest first half in any financial year. The third highlight is we expanded margins significantly through disciplined execution and higher margin coming from advanced AI revenue.
Getting into numbers. Except for booking and ARR, all the growth rates that I mentioned are in constant currency. Our core services business, which is 90% of our business, delivered a strong growth. Services grew 3% sequentially and 4% year-on-year, with a sequential 2.3% organic growth. IT and business services grew 2.7% sequentially and 4.4% year-on-year. Engineering and R&D services grew 4.1% sequentially and 2.1% year-on-year. The services growth was broad based across verticals and geographies.
It reflects how closely our portfolio is aligned with what the clients are prioritizing today, be it AI, cloud, data, cybersecurity or application modernization. Our advanced revenue stands at $219 million this quarter, which is up 28.4% sequentially and 78% year-on-year. Our annualized advanced AI revenue is now $876 million. This performance validates our strategy and is aligned with our ambition to becoming the best AI solutions company. As clearly visible from our numbers, we are able to clearly offset, very effectively offset the AI related deflation and grow our market share in existing services.
In addition to that, our new offerings in advanced AI are helping us capture a share of the ever-growing spend in the tech ecosystem. This quarter's template is what we aspire to repeat in the future. We offset effectively the AI related deflation, grow wallet share and market share in the core services, and add a top-up to all of that by delivering strong growth in the advanced AI services. Overall, our revenue grew 2.3% sequentially and 2.6% year-on-year. Our software declined 5.8% sequentially and 11.2% year-on-year.
This impacted our overall growth. HCLSoftware's annual recurring revenue came in at $1.132 billion, up 7.6% year-on-year. ARR is the best measure of the health of this business, and it is growing organically and including the Jaspersoft acquisition, it's 7.6% year-on-year growth. Our EBIT margin was 18.2%. It's an improvement of 131 basis points sequentially and 72 basis points year-on-year. It came in ahead of our own expectations. This was driven by higher margin in advanced AI. Actually, we had a 32 basis points contribution from advanced AI growth that contributed to the margin improvement.
AI Force and all other AI interventions internally across our operations helped us improve our margins while continuing to invest in AI capabilities, intellectual property development and talent. Coming to bookings. New deals bookings reached $3.3 billion, up 35% sequentially and 27% year-on-year. This is the second highest booking, as I called out, that we've ever recorded and gives us the strongest first half ever in HCLTech's history. AI was a central theme in every large deal that we won. There are a number of significant deals that are mentioned in our investor release.
We continue to execute against the five pillars of our AI strategy, and this quarter we saw them all as one integrated growth model. The pillar one is proactively transforming our services. We are proactively embedding AI across our delivery model, both in existing and new engagements, and we are seeing three clear benefits. One is AI is improving productivity, quality and client outcomes. AI is deepening client relationships and driving larger engagements. The Guardian deal that we announced is a great example of this. AI-led service transformation is now enabling us to win more, as reflected in our strong bookings.
The second pillar is building a differentiated IP. We have matured AI Force into a platform supporting software engineering, legacy and product modernization, data engineering, COTS migration, business operations, and IT operations. The AI Force Agent Store now offers 900+ agents, enabling reuse of proven capabilities and greater autonomy across enterprise workflows. We've also announced our intent to acquire Robotiq.ai, an enterprise RPA platform provider. The pillar three is expanding our AI services. This is a very important growth engine for us and an area of strong momentum spanning the entire AI life cycle.
Our agentic AI offering services crossed $100 million per quarter this quarter. Our AI Factory proposition grew 64% quarter-on-quarter and is becoming a meaningful growth driver. The pillar four is scaling Anthropic strategic AI partnerships. This quarter, we achieved OpenAI advanced partner status and joined its cyber defense initiative. We jointly developed AI Factory deployment and validation capability with NVIDIA, announced a family of Gemini Enterprise offerings, and a joint transformation program with Google Cloud, to mention a few.
Today, we announced the global premier partnership with Anthropic to accelerate enterprise adoption of agentic AI with a focus on safety, cybersecurity, and governance. We will establish a dedicated Anthropic business unit and center of excellence to accelerate deployments of Claude in enterprise environments. HCLSoftware will also become an Anthropic ISV partner, embedding Claude and Claude Code into select enterprise products with frontier safety guardrails. The fifth pillar is developing AI talent at scale. We continue to enable our employees to become AI super users, AI builders, and AI operators.
Our focus now is to leverage these five pillars to create long-term growth through deeper adoption in existing accounts, new relationships through advanced AI, and participation in large transformation programs. A few other business updates. This quarter, we launched HCLTech Pulse, a dedicated business unit for fast-growing enterprises with annual revenue between $500 million and $5 billion, a segment we believe is underserved. We completed the acquisition of HPE's Telco Solutions business, adding differentiated IP across OSS and 5G subscriber data management.
This strengthens our ability to help telecom providers modernize and monetize their networks. We also continue to expand our footprint in India. Alongside the AI data center in Bhubaneswar, we plan to establish a global technology center there to deliver AI solutions for global enterprises. We opened a new global technology center in GIFT City in Gujarat focused on financial services clients. We launched our advanced semiconductor lab in Bengaluru with an investment of INR 185 crore, providing post-silicon engineering, testing, validation, and failure analysis aligned with our spec-to-COTS model. Each of these investments will help drive our future growth.
Coming to the pipeline demand and outlook. Our pipeline remains strong, and it is well-balanced across service lines, verticals, and geographies. We saw healthy demand towards the end of the quarter. However, the environment remains fluid as the demand is influenced by various factors. As we see today, clients are prioritizing AI, data, and operating model transformation wherever there is a clear case for innovation, efficiency, and business resilience. We have strong propositions to address these. As we look ahead, we are optimistic, driven by our record first half booking, strong demand for our advanced AI propositions, improved margin performance, and our full-stack AI offering that is being built incrementally.
We will continue to invest the gains out of our operational efficiency to expand our AI advantage by investing in capabilities, AI, and talent. Having said that, our FY 2027 growth guidance is now 2.5%-4.5%, and our EBIT margin guidance remains 17.5%-18.5%. Services revenue growth guidance is 3%-4%, and our revenue guidance includes the impact of our acquisitions. Our confidence in this guidance rests on the strength of our strong booking, healthy pipeline, and our sustained strong momentum in AI-led services. I would now request Shiv to share more details on the numbers.
Thank you, C.V.K. Good evening, everyone, and thank you for joining our Q2 financial year 2027 earnings call. I will begin with an overview of our financial performance for the quarter. Starting with the revenue performance. Total revenue for the quarter is at INR 35,620 crore, up 3% quarter-on-quarter and 11.5% year-on-year. Services revenue is at INR 32,916 crore, growing 3.7% quarter-on-quarter and 13.1% year-on-year. Software revenue was at INR 2,815 crore, down by 4.9% quarter-on-quarter and 3.7% year-on-year. In terms of profitability, EBIT came in at INR 6,465 crore, representing 18.2% of revenue. This reflects growth of 10.9% quarter-on-quarter and 16.5% year-on-year.
Net income is at INR 5,132 crore at 14.4% of revenue, up 11% quarter-on-quarter and 21.2% year-on-year. Now moving on to return on invested capital, our ROIC. Our ROIC continues to improve, supported by our focus on profitability and efficient capital management. Company ROIC for the last 12 months is at 41.2%, up 261 basis points year-on-year. Services ROIC is at 49.4%, up 411 basis points year-on-year. HCLSoftware ROIC is at 19.2%, down 264 basis points year-on-year. Now update on the cash generation and the balance sheet.
Cash generation remained healthy. Over the last 12 months, free cash flow was at INR 16,480 crore, and operating cash flow was INR 18,117 crore. The balance sheet remained strong with gross cash at INR 25,457 crore and net cash of INR 24,503 crore as of September 30th, 2026. Operating cash flow to net income conversion was healthy at 95%, while free cash flow to net income conversion was at 87% for the last 12 months.
In terms of DSO, total DSO including unbilled receivables was at 84 days, a decrease of two days quarter-on-quarter. In terms of shareholder returns, normalized diluted EPS for last 12 months was INR 70.22, up 5% quarter-on-quarter and 12.2% year-on-year. Including the one-time impact of labor costs, diluted EPS was INR 67.56. The Board has declared an interim dividend of INR 12 per share for the quarter. The record date is October 16, 2026 and the payment date shall be October 26, 2026. This brings the last 12 months payout to INR 60 per share, effectively distributing 88.6% of net income. That concludes my update. I would now like to hand over to Ram for an update on HR matters. Thank you.
Thank you, Shiv, and good evening everybody for joining the Q2 call. For the quarter ending September 2026, the total people strength globally is 230,339. So that's an increase of 6,450 quarter-on-quarter. That's a 2.9% increase in the headcount. On an annualized basis, it's 1.6%. This quarter we added 6,136 freshers. So that's roughly about 1,000 more than what we did in the same quarter last year. Q2 typically is a quarter where we have the maximum freshers joining us. So for the half year this year, we've added similar numbers as what we have done last year. About 15% of the freshers that we added are in the elite engineer category that we have been talking about.
As we build our elite cadre of engineers, we are also scaling a differentiated Forward Deployed Engineer capability that combines deep AI engineering with customer discovery, solution architecture, and rapid prototyping, taking opportunities from use case to production. We are also launching enterprise wide FDE Academy with tracks aligned to OpenAI, Anthropic, AWS, Google, and NVIDIA. We're also working with Microsoft to build an FDE program that further strengthens specialized talent aligned to strategic ecosystem platforms. We are also investing in the next wave through an applied research program with MIT focused on safety of agentic systems.
Getting into Q3, October is when our annual compensation review for our people starts. So we will go ahead with the annual pay increase which will be effective from October. The program that we will follow will be same as what we did last year. I would also like to make a statement regarding the announcement by the U.S. government about the Permanent Labor Certification program, referred to as PERM. We will comply with the directive from the Department of Labor and respond to any questions they may have.
Over the last many years, we have ramped up our in-country recruiting efforts to build a significant local talent base. This is part of our talent strategy, and we will continue with this. In the last couple of years, the number of PERM applications we have filed is a pretty small number. Hence, we do not expect this decision to suspend the PERM program to have any material impact on our workforce plans or client engagements. With that brief, we can now open the floor for questions.
Thank you, Ram. We will now open the floor for questions. For members of the media, please use the Raise Hand feature to join the queue. WebEx mobile app users, tap the three dots on the floating panel and select the Raise Hand icon. For desktop users, please click on the Raise Hand icon in the participant panel. For audio only participants, please press star three to raise your hand. Our first question comes from Jas Bardia from Mint. Jas, please go ahead and ask your question.
Hi, am I audible?
Yes, Jas, please go ahead.
Good evening, sirs. Just a couple of questions from my side. First is, do you see a slowdown in the services side of the business? How soon do you expect your bets in data centers and AI firms to bring in incremental growth to HCL? Would a two to three year timeline be enough, or has the management set another timeline? The second question to C.V.K. Sir, you were one of the first large IT services firms to talk of deflationary trends with respect to AI, especially during contract renewals. Now, a peer has said that deflation is behind them, but do you feel the same? Or as AI becomes mainstream, are there still pockets of deflation that you see? So yeah, those are the two.
Yeah. So Jas, first is slowdown in services and when will you have the AI services contributing to the growth. It's already very visible in our numbers. Like for example, this quarter, our services business is growing 3% sequentially, which is more than $100 million incremental revenue. Right? $50 million roughly has come from advanced AI, and $50 million has come from the core business where we are gaining market share after addressing the AI-led deflation. So I think the template that we really desired, where we want to address the deflation head-on and grow our market share in our core services, and also enable completely new service lines, which is AI Factory, physical AI, agentic, all of that, to contribute to incremental growth.
So that's already playing out. Now, this deflationary impact is. I think there is no one way to define how much deflation is already there and how much is yet to come. I would say we are in the early phases of deflation. It's not that AI deflation has really played out. We are in the early phases of this.
Sir, the data center demand—
As I said, everyone can have a slightly different definition, and the numbers could be different. Coming to the data center, data centers are all a little longer gestation, and we think it's going to be in FY 2028, later half of the financial year is when we will see something meaningful.
Sir, lastly, on the Sarvam stake that you had taken, when do you expect that to incrementally contribute to your revenues?
See, these two are very different, right? One is a strategic investment, which is to kind of build a partnership. We are already seeing a lot of good opportunities that we are working together, and we have also won some meaningful business. It's a little early to call out specific numbers and the growth, but there is good synergy already evolving between the two companies.
Got you. Thank you.
Thank you. Thank you, C.V.K. Our next question is from Poulomi from the Financial Express. Poulomi, please go ahead and ask your question. Poulomi, can you hear us?
Yeah. Am I audible?
Yes, you are. Please go ahead.
Just a couple of questions. I am curious, how much does your AI infrastructure business now make up from total revenue? Also, the hiring mix of the more than 6,000 new hires this quarter. What is the proportion of, say, specialists and FDEs in that?
Yeah. I think your first question was how much is your AI infrastructure business. We call out advanced AI revenue, which has got a set of new offerings, which includes AI Factory, physical AI, agentic, and the AI advisory and those services. That is currently at about $876 million annualized number. That has grown 28% quarter-on-quarter and 72% year-on-year. On the people hiring, maybe I will request Ram to respond.
I think this quarter, the 6,136 freshers that we onboarded, as I indicated, about 15% of them are what we call as elite engineers. Those are the ones who we believe will be upskilled into becoming FDEs. We also need to be cognizant of the fact that fresh engineers coming out of colleges, it may not be fair to expect that they are going to be day one ready as Forward Deployed Engineers, which is why we are launching the enterprise-wide FDE Academy, so that we can upskill the elite engineers that we bring on board. That is going to be our strategy. It is going to be a more talent build approach for our FDEs.
Got it. Just one related question. For advanced AI revenue, what do you exactly consider as it? Because it is different from what your peers report as.
First of all, advanced AI revenue is a completely new category because we embed AI in all our services, service transformation, and legacy modernization. All of that is considered as just core services, because every service that we do will get AI embedded. Whereas advanced AI is completely new services. For example, the best way to understand it is there is $1 trillion CapEx that is going into AI data centers globally. Maybe it is even more. There is a set of services that can be offered to AI data centers, and that is what we are calling as AI Factory, and including some private AI infrastructure that enterprises may set up.
This is a completely new category of services and a new spend category that we are targeting. Similarly, physical AI is a new category. I think we are going after a new category, which is not the traditional core IT services. Which anyway will get modernized, will get AI enabled across the board, and the pace of enterprise adoption can vary depending on the industries, depending on the client situations. That is something we are proactively pursue and implement AI-led delivery model across the board. But advanced AI is a completely new set of services.
Got it. Thank you.
Thank you, C.V.K. Our next question is from Jasmeet Singh Ghai from—
We in group or earlier investor releases, we had called out, there is a separate annexure which talks about all the intellectual property platforms and IPs that we have and all the elements that we categorize as advanced AI.
Thank you. Thank you, C.V.K. Our next question is from Jasmeet Singh Ghai from NDTV Profit. Jasmeet, please go ahead and ask a question.
Am I audible?
Yes, you are, Jasmeet.
Okay. Hello, Mr. C.V.K. Hello, Mr. Shiv. Hello, Mr. Ram. Congrats on the great result. I am Jasmeet Singh from NDTV Profit. I have a couple of questions. The first one is you have cut your upper end of service guidance, though you have narrowed it. I would want to know the reasons for that. How do you see that going in the H2? My second question would be, despite the margin uptick of 120 basis points, where it is better than what we are expecting of your estimations as well, what is the reason that you have maintained the margin band still between 17.5%-18.5%? Would you want to invest more of incremental into AI? That is the second question. The third one would be to ask you the inflection point.
A lot of firms are expecting inflection point anywhere in next two to three quarters, but your AI revenue has increased by roughly 24% in this quarter. How do you see the inflection point coming, and when do you expect it? A rough number would be fine. Last, in the demand commentary, how do you see that changing from Q o Q basis and from what it was a couple of quarters back to now?
Yeah. First, let me talk about guidance. Our revenue guidance is narrowed and because, of course, half the year is over and we have another half left. We did not want to keep a wide band, so we narrowed it. But if you observe a little more carefully, the midpoint of our guidance, both at a company level and at a services level, are the same midpoint that we had in the past. You can always have a question why we have not increased the guidance from the midpoint. Even though we saw good demand building up towards the end of the past quarter, we have been a little cautious because in the last maybe two years, the environment has been very volatile.
Just because we see some good prognosis in the last few weeks, we did not want to extrapolate it. We just want to be cautious. We will update you at the end of Q3. On margins, yes, we are happy with all the interventions and how AI itself is driving better margins. Our stated intent is we will reinvest these profits to further increase our advantage on the AI front, so that we can gain more market share and continue to be the growth leader among the large cap companies.
To this, we have kept the—
All right. But in the— Yes.
—17.5%, 18.5%. 18.5%, which is the same, which when we gave the guidance, we did not assume any impact of the acquisition which we have done. You would have noticed that there is an impact of 25 basis points in this quarter, and we would have some impact of this in the subsequent quarters also because of that, some upfront amortization, additional amortization, as well as some of the transition services cost we would incur initially. Despite that, we have kept the margin range from 17.5%- 18.5% by absorbing this impact on the EBIT.
I've got that point, but on the inflection point, you have not yet answered. When do you see that and the demand commentary? I'd also asked why did you cut the upper end of the service guidance. So that one reason.
I think upper end, we reduced it because we wanted to narrow the band. When you want to narrow the band, you have to increase the lower end and you have to reduce the upper end. That is just the logic, right? Inflection point, I'm not trying to forecast the inflection point in the industry. We believe that 2027 budgets are expected to be better than whatever past years. But it's too early to call out and we will give you an update maybe next quarter when we talk about the next financial year.
Thank you, C.V.K.
Great.
Our next question is from Rukmini Rao from Fortune. Rukmini, please go ahead and ask your question.
C.V.K., commentary around two things, primarily. The partnerships, let's say with the OpenAI and Anthropic that has gotten announced. Just want to understand if these are getting you newer clients that are getting added, and if so, what is the size of these clients that are coming through these partnerships? And two, also, given that you said the advanced AI is coming at a higher margin, is this too early to call it out as a secular trend or is the nature of the deals that has coming through now helping you sort of take a better margin at this point? Your thoughts around both these issues. Thank you.
I think OpenAI partnership, we have announced maybe a few quarters ago. We got an advanced specialization certification. That is what we announced. Anthropic, while we had a partnership, now we are becoming a global premier partnership, and that is what we announced. And they contribute to kind of deploying some of these technologies in existing accounts and also winning new clients. It contributes in both.
And we have called out some of the wins with OpenAI in our investor release. We have had some good success and the progress has been very good on OpenAI front. And Anthropic as well, we have made good progress, but this partnership now will give us a much higher focus and much more strategic relationship which will drive more traction with the clients. On the second question on the margins—
C.V.K., would it be fair to infer that at this point in time for you, they are largely helping to expand your own services that is being delivered to your existing clients?
Any new client that we are winning also, they are all having a significant AI components, whether it is service transformation or legacy modernization, all of that. And for that, we use the right set of tools and where some of these partnerships are very helpful. On the second question—
On the margins.
Yeah. Logically advanced AI should give us higher margins than our existing business. We also are very conscious that this business is in its early nascent phase. It is still a sub-$1 billion business. There is a need to invest, grow talent, build more IP, build more capabilities. We are more focused on maintaining our edge and differentiation to serve our clients and growing this business fast. That is our primary focus. Eventually, this business will deliver a much higher margin than the traditional business.
Thank you. Thank you, C.V.K. Our next question is from Beena Parmar from The Economic Times. Beena, please go ahead and ask your question.
Hi. C.V.K., if you can elaborate a bit on the client conversations. You mentioned a bit about the macro environment, the business environment, but what are the clients really saying? Are they still quite cautious or have they given a timeline on when they expect things to move forward? Especially because AI movement has also been pretty significant. Secondly, how much does inorganic constitute of your Q2 revenue? Shiv mentioned, I think 25 basis points, but is that the entire inorganic contribution? Could you list out some color on that?
Your top five, 10, and 20 client contribution has also reduced. What do you attribute that to, and is that a concern? While you said that new deals will contribute to other deals, but could you tell us what kind of contribution is this going to impact? Lastly, if you could just give us some color on the numbers around overall hiring for the year in terms of freshers, mid-level, and subcontracting given the developments that have happened in the U.S.
Maybe I will request Shiv to provide the clarity on the inorganic contribution, and then Ram can talk about hiring, and I will come back to you on the other two questions.
Beena, in Q2, services inorganic contributed to 62 basis points, and at the company level, the contribution was 97 basis points.
Okay, great. Thanks.
Ram, could you answer the other hiring numbers and—
Yeah, I can address the hiring. As I said, H1 of this year, we have done about 7,200 freshers, which is in similar lines to what we did last year. On a full year basis also, we expect the numbers to be along the similar lines, around 10,000- 11,000 is what it will be in terms of freshers. So far as the lateral recruitment is concerned, it is always on a need basis, right? We do a monthly rolling plan and a quarterly plan. That is not something that is going to be predetermined. It is influenced by a number of factors, so it will be on need basis.
Yeah. Thank you, Ram. Coming back to the—
Sorry, just a follow-up. Any mid-level and subcontracting hiring outlook?
See, subcontracting, it is even more opportunistically done, right? It is all on a need basis. Overall, the subcontractor headcount has largely been stable. If at all, it has marginally come down. We do not expect any significant change in that.
Right. Trust you with that.
Yeah. The client conversation topic. The client conversations have been very encouraging over the last few weeks. The most important thing most clients are looking for is how do they scale the adoption of AI within the enterprise and really deliver certain business outcomes. The business outcomes can be in efficiency, it can be in their business functions like supply chain, reducing whatever receivable days, or even growing their business. Right? Basically, what business outcomes can we really deliver using agentic and all the AI implementation?
That is one big topic. The second big topic is in SDLC and IT ops, clients are able to get value when they try and look at a small piece of their landscape. They are able to demonstrate a much higher productivity, but when they scale, they have significant challenges. What is it that we can do to enable them to scale and ensure that the entire organization is able to operate at a super user level? That is what we are encouraging our people to do.
The conversations have been very productive, very promising, and it largely revolves around making AI work at scale. How do you really get the benefit of AI, which means you might need to modernize your entire tech stack. You may need to redesign your business processes. You need to upskill your people. All of this is part of our client conversations, and it has been positive. The second question you asked was about the top five, 10, and 20.
Right.
This is very specific because if you look at our initial conversation in April when we provided the guidance, we talked about one manufacturing client and two telecom clients, where we expected certain ramp downs, and that is what we factored into our guidance as well when we began the year. It is these three clients which is really contributing to the decline in these three categories. That is all I have to say.
Is that a concern going forward in terms of their contribution—
Sorry?
—to the revenue? Is that a concern going forward? Do you see this kind of having some ripple effect across other larger clients as well?
No, we had very specifically called out the reasons. Rest, there can always be some up and down, but that is not something significant for us to call out. This was significant, and—
Right.
—that is the reason we called out.
Right. Just one last. If I could just follow up to the client conversation bit. Could you tell us what are they saying in terms of the macro environment and also the AI? You mentioned about the AI movement, but overall business demand, when do you see that really improving from a larger perspective?
I think in most of our top verticals, demand is robust. I think clients, they are not talking about when demand will come back. There is a lot of open positions that they need to fulfill, and they want us to deliver. That is really what it is.
Thank you. Thank you, C.V.K. Thank you, Beena. Our next question is from Debangana Ghosh from Moneycontrol. Debangana, please ask your question. Debangana, can you hear us?
Audible now?
Yes, you are.
Hi. Hello, gentlemen. Firstly, I wanted to understand a bit on the margin since it has grown significantly. Is this going to be sustainable, this kind of a range in the upcoming quarters? Secondly, how much of the margin growth is actually happening from also the rupee depreciation and cross-currency tailwinds that you are seeing? Do you expect an impact from the rupee movement to continue on the business in the upcoming quarters? Also, what is the update on the wage hike side?
Shiv, why don't you. The margins?
Yeah. On the margin front, Debangana, you notice that for services, this is our strong quarter, and Q3 is the strong quarter for the software side. We do expect margin in the same range. Accordingly, getting reflected in the results. On the forex side, forex gave us around 23 basis points quarter-on-quarter impact. That was the gain. I will maybe defer this question around the wage hike or impact in Q3 and Q4 to Ram.
Wage hike, as I said, October is when we do the annual wage increases, and we do run it over two quarters across different cross-section of our employees. As I said, it is going to be along the similar lines as what we did last year. Is your specific question about what is the impact of that on margins?
No, I was mostly asking about the wage hike cycle, when you are going to, if it has started already. But yeah, also on the margins.
Yeah.
Will there be an impact?
Yeah, there will be—
On the margin front—
Shiv, you want—
Yeah. It's around 80 basis point impact in OND and maybe another 60 basis points in JFM quarter. We have already factored that in our margin guidance of 17.5%-18.5%.
Sure. Thank you.
Thank you, Debangana. Our next question is from Abhirami from Reuters. Abhirami, please go ahead and ask your question.
Am I audible?
Yes, you are.
Hi. Hi, everyone. I wanted to ask one question mainly. You had mentioned that the environment currently is a bit volatile and that demand towards the end of the quarter was healthy, but the environment was fluid, right? Can you give a little more detail around what exactly is going on here? What were the signs that you saw at the end of the quarter, and why are you not sure whether that will continue?
Yeah. I think if you look at the industry itself over the last couple of years, there has been a lot of uncertainty, macros and AI-related work and whatever geopolitics and things like that. I think that is what I meant by external fluidity. Now, demand was good. It is all around based on our conversation with the clients. During the last quarter, we found things were improving, and that is normally reflected in the amount of work that we have to do, fulfillments that we have to do. These are good indications for what the client sentiment and demand are.
Mm-hmm. In upcoming quarters, what would growth drivers be in order for these signs to kind of be reflected in the results?
Of course, the impact will be seen in revenues. That is a simple way, and maybe people addition, and these are some simple metrics to see.
Mm-hmm. Okay. Thank you.
Thank you. Thank you, Abhirami. We have time for last two questions. Our next question is from Vikash Tripathi from Outlook Business. Vikash, please ask a question. Vikash, can you hear us?
Hello. Am I audible?
Yes, you are. Yes.
Hi. C.V.K., one question on demand only. You talked about geopolitics and AI concerns. I just want to understand from client side, which one is more impactful right now on their decision-making? Are they considering things happening geopolitically to weigh on the spending or opportunities on AI? Is that also helping you get some of the deals? Another question from Ram. Ram, you talked about elite engineer hirings.
Can you help us understand where are you specifically hiring these engineers? Are these fresh graduates from institutions like IIT, NITs or is it pan-India across colleges? If you can talk about IITs specifically, we have seen quantitative firms, algo traders giving high wages to IITians and graduates from there. Is that a concern for you guys?
Yeah. On the first question, what is driving the client sentiments and what is the underlying reason? It is very difficult to call out because it varies from industry to industry. It varies from client to client, depending on what their business priorities are. So it is difficult to call out. I really don't have a very precise answer for that. On the second question, maybe Ram could answer.
The elite engineers, we work with a number of institutions across the country. We also work with IITs and NITs. It is not just exclusively limited to only IITs and NITs. There are a number of other institutions that we partner with and work with. To your question in terms of what challenges we face or other industries attracting talent, it is always going to be there. People have choices, and we work to make sure that what is the value proposition that we offer to employees who come and work for us. It doesn't stop others from doing what they want to do.
We focus on what we can do and how we attract talent to HCLTech. Compensation, yes, it is an important element. I think about five quarters back, we did make an announcement that from the regular cadre of engineers, the compensation that we give to the elite cadre, it is 3x- 4x higher. Obviously we have revised the compensation substantially to make sure that we are not falling behind. People who come and work for us look at us beyond just compensation. Right? Do we need to work hard to attract talent? Yes, we do need to. However, we focus on what we have to offer. Not so much about what other industries are doing.
Got it. Thank you so much.
Thank you. Thank you, Ram. Now we have the last question of the day from Avik Das from Business Standard. Avik, please go ahead and ask your question. Avik, can you hear us?
Audible.
Yes, you are. Please go ahead.
Okay. Just one question for C.V.K. and two for Ram. C.V.K., I was just checking that the revenue per employee has just slowly inched up over the last 12 months. Now, I remember sometime early last year when you talked about the revenue decoupling from the headcount growth. Is it the right time to say that the decoupling has already started happening, at least for your company or for the industry in general, or is it too early to come to a conclusion on that? Ram, just a couple of questions on the headcount. You talked about.
It has been a strong number of employees that you have added this quarter. It looks like for the industry, at least in the first half, the numbers is going to be positive. Again, do you feel that the demand is starting to come back a bit, at least over the next six months, for which I think companies are slowly ramping up hiring? Also, the last question is: keeping in mind all that has happened in the U.S. regarding the H-1B as well as the PERM, do you think that your subcontracting cost is likely to go up in the near or in the long term? Thank you.
Yeah, on the first question, revenue per employee has been growing every quarter gradually. I think there is definitely going to be a revenue and people count decoupling that is going to happen. Now, this decoupling will be gradual because there is no magic to completely platform-based delivery, and so it is going to happen gradually. As more and more IP gets embedded, IP and platform-centric revenue gets embedded into the operating model, then you will see the revenue per employee go up. We are working in that direction, investing in a lot of IP platforms, software business, all of that, which will help towards this. Ram, you want to take the other question?
I will take the headcount. Obviously we had a very healthy headcount addition this quarter, 6,450. As I said, it is a 2.9% growth. If you look at the H1 of this year, the net headcount that we have added in H1 of this year is almost same as what we added in the full year last year. So that is the first sign that the headcount growth has been healthy.
Looking ahead for the next two quarters, I think C.V.K. already made mention to the fact that we have fulfillment to take care of, which is always a good place to be in. So we do expect to see that we will continue the trend for this year. Specific numbers, we may not be able to project specific headcount numbers, but we have fulfillment to deal with, which is a good place to be in.
Just about that, the PERM and the H-1B, do you feel that the subcontracting costs likely to go up in the near or the long term?
I think on PERM, I already made a mention that in the last couple of years, the number of PERM applications we have done is a pretty insignificant number. We don't see that having any impact on our overall workforce plans. So far as subcontracting is concerned, again, I indicated that it's been largely stable over the last five, six quarters. We expect it to be the same. If at all, it's just marginally come down. We don't see any big impact because of these changes. Same as with H-1Bs. Again, reliance on H-1B has been pretty stable over the years. We've made significant investments in the last many years to build a local talent base. That is going to continue to be part of our talent strategy, and we'll continue to do that.
Thank you.
Thank you, Ram. Thank you. With this, we come to the end of our press conference. Thank you everyone for joining us today and for your questions. A replay of this webcast will be available on the HCLTech website shortly. Thank you for your time. Have a great evening.
Thank you.
Thank you.
Thank you.