HCL Technologies continues to earn a BUY rating with a target price of ₹1,800. That's a solid 20% upside from the current price of ₹1,494.
HCLT delivered a standout Q2FY26 with revenue growth of 2.4% QoQ in constant currency, beating estimates of 1.7%. EBIT margin came in at 17.4% against expectations of 16.8%. The company also upgraded its IT Services guidance to 4-5% from the earlier 3-5%.
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Why HCLT Remains a BUY?
Three factors continue to drive conviction in this IT services giant:
Fastest Growing Large-Cap IT Company
Services revenue grew 4.5% YoY in organic constant currency terms, making HCLT the fastest-growing large-cap IT services company. Deal TCV at $2.6 billion rose 40% QoQ, positioning the company well for the second half of FY26. The ask rate to hit the midpoint of updated Services guidance is just 1% CQGR, which looks easily achievable.
First Indian IT Firm to Break Out AI Revenue
Advanced AI solutions now contribute 3% of total revenue, crossing the $100 million mark. The AI Force platform is live across 47 clients with a target of 100 by year-end. HCLT has expanded its AI business to include AI Factory (partnering with NVIDIA) and AI Advisory for enterprise strategy. Early wins are coming from technology, manufacturing, and BFSI sectors.
All-Weather Portfolio
HCLT's diversified business mix across IT Services, ER&D, and Products & Platforms provides resilience in uncertain macro conditions. Revenue expected to grow at 5.3% CAGR in USD terms over FY25-27.
Q2FY26 Results: The Wins and Misses
The Wins:
Revenue: $3.6 billion (up 2.4% QoQ CC vs estimate of 1.7%)
EBIT Margin: 17.4% (vs estimate of 16.8%)
New Deal TCV: $2.6 billion (up 41.8% QoQ, up 15.8% YoY)
IT Services: Grew 2.6% QoQ CC
ER&D: Grew 2.2% QoQ CC
PAT: ₹42 billion (up 10.2% QoQ)
Attrition: Declined 20bp QoQ to 12.6%
Interim Dividend: ₹12/share declared
What Missed:
PAT remained flat YoY at ₹42 billion vs estimate of ₹43 billion
Products & Platforms business grew just 0.5% QoQ CC
Software business soft due to lower perpetual licensing revenue
Manufacturing vertical down 1.8% YoY CC
Restructuring costs impacted margins by 55bp
The PAT miss isn't concerning. It came in at ₹42 billion against an estimate of ₹43 billion, just 2.6% below expectations. The restructuring charges are temporary and should normalize.
Segment Performance: Where the Growth Is Coming From?
IT Services (74.2% of revenue) The core engine delivered 2.6% QoQ CC growth. This segment benefits from legacy modernization deals led by AI platforms. Several $100 million+ program opportunities are in the pipeline.
ER&D (17% of revenue) Engineering and R&D services grew 2.2% QoQ CC. Strong traction continues in product engineering and digital manufacturing.
Products & Platforms (9.1% of revenue) The software business remained soft at 0.5% QoQ CC growth. Lower perpetual licensing revenue dragged performance, though subscription revenue partially offset this.
Vertical-Wise Performance
Vertical
YoY CC Growth
Technology & Services
13.9%
BFSI
11.4%
Telecom, Media & Entertainment
11.7%
Retail & CPG
5.5%
Public Services
2.2%
Manufacturing
-1.8%
Life Sciences & Healthcare
-3.0%
BFSI and Technology are seeing healthy momentum. Manufacturing continues to lag due to auto sector weakness. Retail & CPG showing solid momentum in large-scale transformation work.
Geography-Wise Performance
Geography
YoY CC Growth
Rest of World
17.9%
Europe
7.6%
Americas
2.4%
RoW led growth at 17.9%, followed by Europe at 7.6%. Americas saw modest growth at 2.4%.
The AI Story: Why It Matters
HCLT is the first Indian IT vendor to break out AI-led revenues.
Here's what's happening:
Advanced AI Revenue: Now at $100 million, contributing 3% of total revenue. This includes Agentic AI, Physical AI, AI Engineering, and AI Factory. It excludes Classical AI, Data Analytics, and GenAI-enabled delivery.
AI Force Platform: Already deployed across 47 accounts with a target of 100 clients by year-end. The platform is seeing traction across technology, manufacturing, and BFSI.
AI Factory: Partnerships formed with NVIDIA, DELL, and HP. Demand is scaling rapidly with delivery capability expanding. This will service large data center programs with minimal capex.
The Deflation Reality
HCLT has been transparent about AI-driven deflation in traditional services:
BPO: 40-50% deflation
SDLC: 25-30% deflation
IT Ops: 10-20% deflation
IMS: Additional 10-15% if ML automation is applied
The company's response?
Building proprietary IP on top of cutting-edge OEMs like OpenAI and NVIDIA. This positions HCLT in a sweet spot rather than competing head-on with rich-world OEMs on R&D.
Financial Outlook: FY26-28
Steady growth with improving profitability is expected. Revenue projected to grow at 6% CAGR from FY26 to FY28, reaching ₹1,447 billion.
Growth Trajectory:
Metric
FY25
FY26E
FY27E
FY28E
Revenue (₹B)
1,171
1,286
1,362
1,447
EBIT Margin
18.3%
17.3%
17.8%
17.8%
PAT (₹B)
174
179
200
209
EPS (₹)
63.9
65.9
73.6
77.0
ROE
25.2%
25.8%
29.3%
31.1%
Revenue Outlook:
IT Services will continue driving growth at 4-5% YoY CC as guided by management. ER&D maintains momentum on product engineering demand. Products & Platforms expected to remain soft due to perpetual license decline.
Margins & Profitability
EBIT margins expected at 17.3% for FY26, improving to 17.8% by FY27-28. Near-term headwinds include wage hikes effective October (70-80bp impact in Q3, additional 40bp in Q4) and restructuring charges.
Earnings Growth
PAT is forecast to grow at 7.2% CAGR in INR terms over FY25-27. EPS projected to climb from ₹63.9 (FY25) to ₹77.0 (FY28).
Return Ratios
Capital efficiency continues improving:
ROE: 25.2% → 31.1% by FY28
ROCE: 22.9% → 28.7% by FY28
These reflect strong asset utilization and improving profitability.
Margin Headwinds to Watch
Q2 saw a healthy beat on margins at 17.4%, but expect some pressure ahead:
Wage Hikes: Effective October 1st, expected to impact margins by 70-80bp in Q3 with an incremental 40bp impact in Q4.
Restructuring Costs: 55bp impact in Q2 from skills mismatch and redundant facilities from past acquisitions. This will continue through Q3 and possibly spill into Q4 with around 40bp full-year impact.
Furloughs: Seasonal furloughs in Q3 will create some pressure.
Management expects FY26 margins to land nearer the lower end of the 17-18% guidance range.
Deal Pipeline and TCV Analysis
The $2.6 billion TCV in Q2 is notable because:
Achieved without any mega deals
Up 41.8% QoQ and 15.8% YoY
Reflects robust sales engine capability
Bookings exclude renewals but include scope expansions
Key deal highlights:
Large deal won from Europe-based retailer in legacy modernization
Two large deals signed that were delayed from Q1
5 of 10 renewal deals saw higher ACV driven by AI integration
Target to lift quarterly TCV run-rate from $2 billion to $2.5 billion
HCLT is valued at 24x June 2027 EPS, arriving at ₹1,800.
Current Valuations:
22.7x FY26E earnings
20.3x FY27E earnings
19.4x FY28E earnings
At 20x FY27 earnings with the company being the fastest-growing large-cap IT services firm, the valuation looks reasonable. The dividend yield at 4% adds to total returns.
First to break out AI revenue at 3% of total sales
Strong deal TCV of $2.6 billion positioning well for H2FY26
All-weather portfolio provides macro resilience
Healthy dividend yield of 4%
Services guidance upgraded to 4-5% from 3-5%
ROE improving from 25% to 31%
Strong free cash flow at 125% of net income
Risks You Should Know:
Near-term margin pressure from wage hikes and restructuring
Products & Platforms business remains soft
Manufacturing vertical weakness continues
AI-driven deflation in traditional services
Auto sector drag on revenues
Currency fluctuation impact
Who Should Buy:
Investors with 12+ month horizon
Those seeking exposure to Indian IT with AI positioning
Income-oriented investors (4% dividend yield)
Position size: 3-5% of equity portfolio
Who Should Avoid:
Short-term traders expecting quick gains
Those uncomfortable with IT sector volatility
Investors seeking high growth (PAT CAGR at 7%)
Frequently Asked Questions
1. What is HCL Technologies' target price?
The target price is ₹1,800, representing 20% upside from ₹1,494. The target is based on 24x June 2027 EPS, factoring in HCLT's position as the fastest-growing large-cap IT services company.
2. Is HCL Technologies a good stock to buy?
HCLT maintains a BUY rating. The stock suits investors with 12+ month horizons who want IT exposure with AI positioning. Key positives: fastest growth among large-caps, AI revenue breakout, strong TCV. Key risks: near-term margin pressure from wage hikes.
3. What were HCL Tech's Q2 results?
Q2FY26: Revenue $3.6 billion (up 2.4% QoQ CC), EBIT margin 17.4% (up 120bp QoQ), PAT ₹42 billion (up 10.2% QoQ). New deal TCV at $2.6 billion jumped 42% QoQ. IT Services guidance upgraded to 4-5%.
4. How much is HCL Tech's AI revenue?
Advanced AI revenue crossed $100 million, contributing 3% of total revenue. This includes Agentic AI, Physical AI, AI Engineering, and AI Factory. HCLT is the first Indian IT vendor to break out AI-specific revenues.
5. What is HCL Tech's dividend yield?
Dividend yield stands at 4% with a payout ratio of 90%. Management declared an interim dividend of ₹12/share for Q2FY26.
6. Which verticals are growing for HCL Tech?
Technology & Services (13.9% YoY), BFSI (11.4% YoY), and Telecom (11.7% YoY) are leading growth. Manufacturing (-1.8%) and Life Sciences (-3.0%) continue to lag.
7. What is HCL Tech's growth outlook?
Revenue expected to grow at 5.3% CAGR in USD terms over FY25-27. PAT growth at 7.2% CAGR in INR terms. Services guidance raised to 4-5% YoY CC for FY26.
8. What are margin headwinds for HCL Tech?
Wage hikes from October will impact 70-80bp in Q3 and 40bp more in Q4. Restructuring costs adding 55bp impact. Furloughs will also weigh on Q3. FY26 margins expected near lower end of 17-18% guidance.
The Bottom Line for HCL Technologies
HCL Technologies offers a solid play on enterprise AI adoption with its first-mover advantage in breaking out AI revenues among Indian IT vendors. The $2.6 billion deal TCV provides strong visibility for the second half.
The stock suits investors with 12+ month horizons who want IT exposure without betting on a single vertical. At 20x FY27 earnings with improving ROE trajectory and 4% dividend yield, the valuation looks reasonable.
Near-term margin pressure from wage hikes and restructuring will weigh on stock performance. However, HCLT's positioning on AI platforms and strong execution track record make it worth considering at current levels.
Disclaimer: *The companies mentioned in the article are for information purposes only. This is not investment advice.
