HCLTech's Q2 FY26: AI-Powered Growth and Strategic Clarity

HCLTech, a global technology powerhouse, delivered a robust performance in the second quarter of fiscal year 2026, showcasing broad-based growth, significant margin expansion, and exceptional bookings. The company's strategic focus on AI-powered solutions and efficient capital management appears to be yielding strong results, reinforcing its position in an evolving technology landscape. For the quarter ended September 30, 2025, HCLTech reported total revenues of ₹31,942 crore, marking a 10.7% year-on-year growth in INR terms. This strong top-line performance was complemented by enhanced profitability, with EBIT reaching ₹5,550 crore and Net Income at ₹4,235 crore.

The Services business, a key revenue driver, grew 5.5% year-on-year in constant currency, with both IT and Business Services and Engineering and R&D Services contributing positively. While HCLSoftware's constant currency revenue saw a slight decline year-on-year, the company emphasized its strategic shift towards increasing subscription, support, and professional services revenue for more sustainable value. Geographically, Europe and the Rest of the World segments demonstrated strong growth, while the USA, the largest IT services market, also contributed to the overall expansion.

Financial Highlights: A Snapshot of Performance

HCLTech's Q2 FY26 financial results underscore a period of strategic execution and operational efficiency. The company's ability to expand margins while investing in growth areas like AI is a testament to its disciplined approach.

Note: Q2 FY26 EBIT Margin includes 55 bps impact of restructuring cost.

AI at the Forefront: Driving Future Growth

A significant highlight of the quarter was HCLTech's Advanced AI revenue crossing the $100 million mark, representing approximately 3% of the total revenue. This milestone signals the company's successful transition from AI pilot projects to a monetization phase. Management emphasized its four-pronged AI strategy: proactively transforming services, building differentiated AI intellectual property (IP), expanding into new AI-led services (like AI Engineering and AI Factory), and strengthening AI partnerships across the technology stack.

The company's AI Force platform saw its v2.0 beta release, with General Availability slated for January 2026, and is already deployed across 47 client accounts. New offering pillars like AI Factory and AI Advisory have been introduced, catering to the growing demand for scalable AI adoption. HCLTech is also actively investing in talent transformation, having trained 820 black belts in H1 FY26 and embedding AI principal cohorts in over 50% of its priority accounts.

Operational Efficiency and Capital Allocation

HCLTech demonstrated robust operational efficiency, with operating margins improving by 116 basis points sequentially to 17.5%. This recovery aligns with management's previously communicated plan, despite a 55 basis points impact from restructuring costs in Q2 FY26. The company's Return on Invested Capital (ROIC) also saw significant improvement, with the company-level LTM ROIC at 38.6%, up 290 basis points year-on-year.

Cash generation remained strong, with Free Cash Flow (FCF) to Net Income conversion at 125% on an LTM basis, and a healthy net cash position of $3.29 billion. This strong cash flow supports the company's dividend payout of ₹12 per share, marking its 91st consecutive quarter of dividend distribution. Management's focus on efficient capital management and disciplined investments underscores its commitment to shareholder value.

Outlook and Strategic Vision

Looking ahead, HCLTech has raised its full-year Services revenue growth guidance to 4%-5% in constant currency terms, while maintaining the overall company-level guidance at 3%-5% in constant currency. The EBIT margin guidance remains firm at 17%-18%. Management acknowledged the ongoing impact of restructuring costs and the slowdown in the auto sector but expressed confidence in the robust pipeline and the increasing demand for AI-led modernization programs.

The company's strategic vision is centered on leveraging AI to drive non-linear growth, enhance productivity, and deepen client relationships. By transforming its services, building proprietary AI IPs, and fostering a strong ecosystem of partnerships, HCLTech aims to lead in the AI era and deliver sustainable value for its clients and shareholders. The quarter's performance reflects a company executing with clarity and confidence, navigating market complexities with strategic foresight.