HCL Technologies (HCLT IN) – Q2FY27 Result Update – Strong execution, but outlook maintained – HOLD

HCLT reported Q2FY27 rev. growth of 2.3% QoQ CC, marginally below our and consensus est. of 2.4% and 2.7%, respectively. Services segment grew 3.0% QoQ CC (organic 2.3% QoQ), led by ITBS (+2.7%) and ER&D (+4.1%), while Software declined 5.8% QoQ CC. Adj. EBIT margin expanded 150 bps QoQ to 19.0%, vs our estimate of 17.7%, aided by higher margin AI-led revenues and outperformance of ITBS. Advanced AI revenue grew 28.4% QoQ CC to USD219mn (annualized run rate of USD 876mn), derives 7–10% higher margins than traditional services. Management sees AI as an incremental growth lever to offset deflation in traditional services, the partnerships with frontier model providers help capture enterprise AI spending. Software segment continues to weigh on consol business due to underlying transition of perpetual licence model to subscription-led revenue. Deal momentum remained strong, with net new bookings of USD 3.26bn marking the 2nd highest quarterly bookings in the company's history. Despite the 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. Considering the outperformance of Service business (ITBS), we raise our Service business growth to 3.8% (3.2% earlier), while retaining FY28E and FY29E est. On the margins front, the outperformance in Q2 was notable and hence we pass on the benefits and raise our FY27 margins to 18.2% (17.8% earlier), while keeping FY28E and FY29 margins est. largely unchanged. We value the stock at 15x Sep. 28E EPS to arrive at a target price of INR 1,230 and maintain our HOLD rating.