Thank you very much. We will now begin the question-and-answer session. Our first question comes from the line of Abhishek Bhandari with Nomura. Please go ahead.

Yeah, thank you for the opportunity. CVK, congrats on the good deal wins. I had two questions. First is on your guidance. This quarter we had 2.4 billion deal wins, which in the press conference you said is highest ever for any Q1. And along with that, we also had a mega deal, announced in the first week of July. So what are the various moving parts which is, restricting you from increasing the guidance from here? I'll come back with the second question after this.

Yeah, so yes, we are happy to report a very strong booking, but as you know our guidance band is a little broader and this is only the first quarter. So, we would like to see how things pan out in the next quarter. On the mega deal win, the transition is expected to start in a couple of months, and the steady state is expected to be reached only in April of 2027, so which is coming in the next financial year. It will have negligible impact to our revenue in this financial year. And that's really what it is, Abhishek.

Got it, thanks CVK. My second and last question is on the, investment in the datacenter. If you can share more details around it, what are the upper limits or the periods of investment in this, particular avenue? If I look at it works out to almost $7 million per megawatt, which is kind of the cost for a colo cation datacenter, not an AI datacenter. So, I'm a little confused, what makes you say it's a AI datacenter? Are there any increasing or commitments on the investments once you deploy the INR3,500 crores?

Yeah, our 50 megawatt is a long -term plan. The INR3,500 crores is representing only a fraction of that capacity and that is the initial investment that should get us started. And we will have a very disciplined approach to increasing investments based on the free cash flow that's getting generated from the business. So, this is an initial investment that should get us started. This is not a colo business. This is going to be a full stack play. And there are potential possibilities of funding this through a mix of partners arrangements with silicon and OEM vendors and committed capacity from clients and consumption models where the hardware is financed against contracted demand. Even this could be funded through a mix of equity and debt. So we are not putting this entire investment in the balance sheet in a single year. We are not funding it at the expense of our stated payout policy. We will provide more details as we progress. So, you should not correlate and calculate INR3,500 crores for 50 megawatt, but 50 megawatt is a long -term plan and this investment is for a much smaller capacity which will be an end-to-end stack.

Got it, thank you CVK and all the best.

Thank you, Abhishek.

Thank you. Our next question comes from the line of Abhishek Pathak with Motilal Oswal. Please go ahead.

Yeah, hi team, hi CVK. A fantastic quarter. I had a couple of questions. Firstly, how do you view token costs in context of AI adoption? If they had not been so high, do you think our AI services revenue would have been higher? And over a 2-to-3-year perspective, how does your team look at token costs? I mean, do you guys expect token costs to collapse, which leads to massive AI implementation revenues, or do you expect them to be elevated, which slows down AI displacement and hence leads to better defense for IT services? So that's the first question on AI. Maybe I'll just follow up with the second one after this?

Yeah, token costs, I mean, if you see about 3 months ago or 6 months ago, token cost was not a topic. It's only when enterprises started scaling the adoption of AI, the whole various dimensions of token costs came into play. Now, as the token consumption cost we believe, I mean, it really depends on the exact models that you're implementing, and customers are looking at creative ways to reduce their overall token costs. And that is where the tiered approach is becoming the most popular enterprise AI architecture, both for data sovereignty for the enterprises and for the right price performance. So token costs could drop, but however the overall consumption of tokens will go up, so total cost will also go up. So, you need to build a more economic model, which is where our strategy of building a tiered approach with smaller models within the enterprise which can be trained on the enterprise data and also a zero trust architecture with a policy enforcement gateway which ensures that no data or prompts or context leaves the enterprise. So that's the model which is becoming prevalent and this will have some meaningful, very, very meaningful services revenue opportunity because in every client training SLMs requires a lot of data work and also training can also be quite intensive in terms of the research requirements and all of that. So, we think it will be like another engineering services wave that we can create by really pursuing our strategy on a hybrid AI stack.

Understood. And in that context then, it was interesting when you mentioned that Sarvam AI is something that you're looking at from the Indian market standpoint. Is it possible to take Sarvam's, low-cost models maybe to global clients as well and are you k ind of, in discussions about that too? And the last question was to Shiv on margins. Do we expect to kind of, get back to our original 18% to 19% sort of margin band, anytime soon, maybe in FY28, or do we expect the AI investments to kind of continue and kind of hold back our margins a bit going forward in the in the medium term as well? Thank you.

As you rightly mentioned, apart from what we can do in the Indian enterprises and public sector and government, there is an opportunity with the global enterprises. We have talked about the tiered approach and SLMs model, and it is generating lot of interest. Sarvam is a very good option where we have lot stronger partnership and our ability to kind of really build the entire training infrastructure, training the small language models on enterprise data and some of the research capabilities, all that comes in very handy as we build it. But the model dependency itself need not be Sarvam because there are other options as well, but I think our closer strategic partnership helps us drive this with a stronger execution.

Abhishek, on the margin front, if you remember last year, if you take out the impact of restructuring cost, then our margins were closer to 18%. And this year the guidance is 17.5% to 18.5% and that also includes approximately 40 to 50 basis points restruc turing cost impact. As regard maybe the longer term, the medium-term horizon of around FY28, we will, give that guidance at an appropriate time when we give guidance for FY28 next year. At this stage, time I would just like to focus on this year's margin guidance, which is 17.5% to 18.5%.

Thank you so much and all the best.

Thank you. Our next question comes from the line of Ravi Menon with Axis Capital. Please go ahead.

Hi, thank you for the opportunity and really good performance in the ITBS business considering both the seasonality and headwinds in the two telecom customers and I think the SAP program ramped up as well that you had called out last quarter. But ER&D was a decline was a surprise. Which segment was this in and is there any further decline anticipated in ER&D in the coming quarters?

Yeah, the decline in ER&D was in Tech and Telecom, Media and Entertainment verticals. And we did call out that we had some sharp cuts in discretionary spending in two large US telcos, and we did say that it will have an impact in the subsequent quarters and that is what is playing out. And we've had a very strong momentum in the tech vertical for last many quarters, so some of this is on the very high base. So that's really what it is.

And CVK, what's prompted a rethink on the AI datacenter investment? Is this because you're seeing more customers now wanting to probably run open -weight models and control the hardware where the data resides?

Yeah, absolutely. I mean, the closed models have their own significant limitations, so clients are looking at open models, both open weight and open-source models. In datacenter, our play is a fundamentally different strategy because large gigawatt announcements are more capacity plays and they are infrastructure companies where the product is megawatt. For us, megawatt isn't the product, it is just the anchor. Our value is in full stack of AI high -margin services which we wrap around that capacity. More importantly, it would be deploying efficient SLM -led models as you did call out to address industry and vertical needs. And 50 megawatt is good capacity to build a large business if you want to do small language models and not frontier models. This will generate far more enterprise value per megawatt than raw hyperscale capacity because we monetize the entire solution, not just space and power. And this capacity is also going to help us to drive more and more outcome-based contracts and managed services contracts where we can consume some of this capacity which gets bundled into our outcome -based pricing and managed services pricing for global clients. So, I think these two were very important kind of dimensio ns which made this business very lucrative.

Thanks. One last question. As your revenue per employee increases, do you also expect gross margins to expand?

Yes, of course, from last year to this year our guidance is improving gross margins, but I think if our strategy works out as we have planned, we do expect the gross margin per employee to increase. However, we will continue to invest because the business is in a significant inflection point and transformation. So, we will not hesitate to make the right investments while continuing to demand and get greater value from our clients.

Thanks so much and best of luck.

Thank you.

Thank you. Our next question comes from the line of Sudheer Guntupalli with Kotak Mahindra Asset Management Company. Please go ahead.

Hi CVK, thanks for the opportunity. Just a couple of questions on the datacenter. General understanding in market is that 1 gigawatt of capacity will cost roughly $60 to $80 billion if we were to provide AI datacenters on a full stack mode. So, 50-megawatt capacity should require nearly INR30,000 crores of overall investment even if that is spread over multiple years. Is that a fair assessment or since we are targeting this to more of training SLMs, will the economics be any different?

Yeah, I think your economics at a high level is correct and we did not say that this INR3,500 crores is for 50 megawatt. Our overall vision is to drive a business of 50 megawatt. We're starting with the INR3,500 crores, which would be a fraction of that capacity. But we don't see us investing so much capital into this business. We believe there are funding opportunities through a mix of partners coming in with silicon companies and OEM vendors and committed capacity and also GPUs based on committed contracts, all of that. And some amount of equity and debt combination. So, we don't expect this to be anywhere near let's say INR30,000 crores kind of investment. Our plan is to invest about INR3,500 crores and how the business economics works out and then start investing based on free cash flows from the business.

Okay, so the second question is there's almost 100 gigawatt s of announced AI datacenter investments in the pipeline and recently some of the companies like SpaceX and Meta, they decided to sell or lease their compute. So, in the backdrop, the growing perception is that compute may not be as scarce as it is made out to be, or maybe we are at the frag end of compute-related bottlenecks. By the time our proposed 50-megawatt capacity becomes fully operational, if the compute demand cycle were to turn for whatsoever reasons, how do you think of the tenancy ratios here and ROICs of the proposed investment?

Yeah, I think even now the market is heavily GPU starved, there is no ambiguity at all. And the reason some of the big companies are renting out GPU capacity is it's very lucrative to rent out GPU capacity, that is possibly one reason. And 50 megawatt is a very, very small fraction of the total capacity that is needed. So, we don't believe, I mean, this capacity will just get consumed very, very quickly, including some of the commitments that we have for the initial investment and next level of investments are going to be based on how we deliver on the initial investments.

Okay sir, thanks and all the very best.

Thank you. Our next question comes from the line of Gaurav Rateria with Morgan Stanley. Please go ahead.

Hi, thank you for taking my questions. I have three questions. Let me just, you know, just lay down that all and then you can answer based on your comfort on order of preference. My first question is on your strategy around the datacenter. If we compare the current cycle to the cloud and digital cycle, at that time, you know, as services company, we did not require to build the required infrastructure to support the rollout of our services. So, we did not have to build the cloud, we had to partner with the right hyperscalers. But this time it looks like we have to build out the required infrastructure to be able to roll out the small language model and other capabilities. So, I'm just trying to understand how is this cycle different from the one that we saw in the cloud and digital side of things. The second question is on your near-term visibility and guidance. So, my understanding is that this quarter has turned out to be probably, you know, slightly better than what we expecting because our YoY growth in services business is ahead of our midpoint of the guide. And we are maintaining our guide, it kind of shows some deceleration in the YoY trajectory for services business over the coming quarter. So, is the outlook incrementally sort of, you know, become a little bit tougher than what we saw at the start of the quarter? And the last question is on the margins. So, our current margin guidanc e, does it take into account incremental impact from the amortization-related expense that will come because of the M&A? Thank you so much.

Yes, so on the datacenter strategy and its comparison to the cloud and digital cycle, I think, there is a big reversal of how this is playing out because private AI stack is going to be the answer for a lot of enterprise needs. And of course, frontier models will be required, but you use frontier models very selectively. So, under this consideration, you have an option to create VPNs with cloud providers, but I think given the data sensitivity and all of this, it's a much better solution for clients, and its price performance is very, very attractive for an SLM- based solution. So, I think, this cycle is looking different based on the entire analysis of the current situation. On the near -term visibility guidance on services and all that, I think we're happy that we've done a little better than what we expected. And the macro environment, and some of the deal client-specific challenges that I talked about in the beginning of the quarter, last quarter, some of them will play out in the subsequent quarters and which was also as planned. So right now, the whatever macro -related situation what we saw in March which continues to be the same today, so we're not able to visualize anything different. So, we're continuing with the guidance, but obviously after Q2, we will come back to you, with any further directional change.

And Gaurav, on the margin’s guidelines, as we called out, our revenue as well as margin guidance are for the organic business. And on top of that we will have the revenue and the margin impact of the acquisitions which we are going to do of Jasper soft and maybe later this quarter the other one. So that is outside the impact of those acquisitions.

Thank you, all the best.

Thank you.

Thank you. Our next question comes from the line of Vibhor Singhal with Nuvama Equities. Please go ahead.

Yes, hi, thanks for taking my question and congrats team for a solid deal wins and a great performance in the beginning of the year itself. CVK, just two questions from my side, and then I just have one small follow-up as well. So, in terms of verticals, I think, you explained the weakness in telecom and high-tech which was kind of expected and that is kind of leading us down. Our BFSI growth has been quite strong for past, I think, more than almost 10 quarters. How are the clients looking at the spends in the BFSI segment in terms of their AI strategy? Earlier we had seen a lot of insourcing happening there, but are the client’s kind of opening up to a more third-party outsourcing there, and that is what is kind of leading us to the kind of growth that we are seeing in this vertical? And secondly on the healthcare vertical, we've fallen off a bit from let's say the run rate that we used to have almost $500 million, and it's been a continuous kind of not a very sharp one, but a kind of a gradual decline over the past eight -nine quarters. So, what's ailing that sector, and how do you see, do you see any turnaround in this sector in the coming quarters? And then I'll just have a small follow - up for Shiv.

Yes, thank you, Vibhor. So financial services as you rightly called out, we've had solid momentum over last maybe 12 quarters and even the YoY growth is the highest in the industry. And it's been driven by our AI-native approach to lot of large clients. We also have been more proactive about AI adoption, so we have won significant wallet share in our top customers in financial services. That's number one. The second thing is we're seeing a very broad -based traction in the data and analytics space. A lot of it is preparatory work towards building enterprise AI stack. So, I think that's been a big tailwind at least in the recent quarters . Coming to the Life Sciences and Healthcare vertical, of course we had a good mix of engineering services as well in Life Sciences and Healthcare. And we had a strong traction due to certain regulatory work which was required to be done for a lot of medical devices companies, which was one of the key contributors to strong growth in Life Sciences business three years ago. And those regulatory work came to an end, and that did not get refilled with something else, so that was one reason. The second reason is the Healthcare segment itself is heavily stressed in the US and most of our healthcare revenue comes from US. So that has been also a cause. So, I think these are the two reasons. Otherwise, we continue to win regular business and execute well, but there have been some headwinds which we are facing.

Got it, got it. Thanks, CVK for that detailed explanation. Just one quick bookkeeping question for Shiv. Shiv, the Jasper acquisition got completed in the first week of July. So, while it is not included in our guidance, it will still contribute to the revenues from Q2 onwards. Am I right on that?

That's correct.

And any indication as to how much could be the contribution from the Jasper acquisition to our full year revenue in FY27 or a recurring contribution that we could have on an annualized basis?

We're still working on it, Vibhor. I think we will possibly give maybe $10 to $15 million per quarter in that range, but there's a seasonality involved, so it's going to be that range, I think.

Okay, $10 to $15 million per quarter.

Yes.

And lastly, the CTG acquisition is yet to be closed, right? That is not yet closed.

We expect that to be closed maybe later part of this quarter, but yes, I think that's also on the card. Hopefully this quarter only, we don't know the exact details, but maybe towards the later part of this quarter, that will also get closed.

Got it, got it. Great, thank you so much for taking my questions and wish you all the best.

Thank you.

Thank you. Ladies and gentlemen, we will take that as our last question for today. I would now like to hand the conference over to Mr. C Vijayakumar, CEO and MD, for closing comments. Over to you, sir.

Yes, thank you everyone for joining us today. We are very happy that we've started the year on a good note despite a seasonally weak Q1. And we're also very encouraged by our bookings and also the potential bookings in Q2. We have a strong pipeline, and we continue to evolve very strongly as an AI-native and AI -amplified services player, and we look forward to your continued support as we evolve into the best AI solutions provider. Thank you and have a good evening.

Thank you. On behalf of HCLTech, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.