We will now begin the question -and-answer session. The first question is from the line of Ankur Rudra from JP Morgan. Please go ahead.

Just a quick question on the guidance and also your comment on the AC V up 9%, 20% YoY. Seems to be implying a negative at the midpoint for the 4th Quarter. Can you maybe elaborate a bit more in terms of where that comes from? And, since you mentioned smaller deals are converting faster, could you broadly talk about discretionary spending across the industries?

For Services, the organic Q4 ask rate which was (-1.32%) to (+0.6%) to reach the lower end and higher end of the guidance. We have seen an improvement in the demand ; small deals are getting converted quicker and larger deals are taking time. That is why you see the TCV has not changed materially, but ACV has. While we feel good and confident of the pace of recovery, Q4 outlook accounts for a couple of things ; one is successful delivery of a large transformation program which is coming to an end in Q3 , there is a planned reduction in the mega deal which was expected and ramp up in some of the discretionary deals also will take some time because some of the conversions happen towards the end of the year. Now ramp up and getting into revenue only partially will get realized. So, the underlying momentum remains quite strong, but some of these factor’s kind of make Q4 a little soft.

Thank you. How does calendar 25 looks to you right now, given how you're seeing conversations around budgets and spend perspective? One of your peers highlighted that they are seeing improved deal signings and revenue conversion. Now you of course have some one-offs in 4th quarter, but historically we've also seen a softness in your 1st quarter. How should we think about the next four quarters on a momentum perspective?

See, we've called out the pickup in discretionary spend if you really look you have seen a broad-based nature of our growth in Q2 and Q3. And we talked about Q4 as well, I think, excluding these two factors which would be visible in retail CPG and the telecom vertical, we expect good growth in other verticals. Our annual guidance is released in April when we close the earlier fiscal, so numerical answer or even a directional answer, you probably will have to wait. I think the Q1 softness tha t you saw last year was also specifically due to one large deal getting into the second year. I think that element will not be there, or it will only be there marginally in Q1. Other than that, I think it should be a regular BAU kind of a quarter. Beyond t hat, the pipeline is good, and we think we will deliver a good booking in the next couple of quarters. Beyond that, I don't want to give you any direction on FY26.

I appreciate the color. Just one last question on AI. You spoke a lot about Agentic AI. Just a question, the impact of this, is it different from what you had highlighted during the analyst day back in August? And overall, is Agentic AI adoption going to be additive or diluted to your service portfolio? Thank you.

Yes, I think it was similar to the conversations that we highlighted during the analyst day. Now, I think some of this is getting better enabled, especially in the business process space. Agentic is much more promising and I think the real difference is the cost at which you can do this is going to make a big difference because Agentic uses small or very small models and very, very specific models. That makes the whole price performance of what we want to achieve much mor e compelling, and we think the adoption will accelerate. At this point, I see it as a net positive because the biggest driver due to GenAI is the legacy modernization programs. So, I think that is picking up a lot of steam. Mainframes, w here clients were very hesitant to touch, at least clients are happy to initiate certain programs around it. The second big element is data, we've seen a good uptake in our data pipeline and the bookings in the last quarter. I think these two and a little more drive towards cloud adoption . I think these are really the core discretionary spends, but it is getting accelerated due to some of the POCs that have bee n done or early experience on Gen AI.

Thank you. We have the next question from the line of Surendra Goyal from Citigroup. Please go ahead.

Yes, good evening, gentlemen. CVK, can you share the ACV trends on a LTM basis now that HCLTech has started disclosing that data point again?

Surendra, I don't have the LTM trend readily available. We can share it maybe towards the end of the call if we can.

Sure. And the second question is on planned reduction - was it known in October when you reported the second quarter? And the reason I ask is the upper end of your guidance was building in a pretty high growth, implied growth in 3Q, 4Q. And in the press conference, you said that 3Q played out at least for servi ces in line with what you thought?

Yes. So, I think our guidance was 3.5 % to 5%, and the midpoint of that was 4.25 %. And if you look at our organic guidance now, the midpoint continues to be 4.25%. In this whole, when we provided the guidance, we had assumed Q3 to be stronger and Q4 to be weaker because we knew this anniversary impact of the large deal would kick in Q2. It's not at the same proportion as we talked about last year. This is a little gradual impact. We had a small impact in Q3. There'll be a little more impact in Q4 and maybe a residual impact in first part of Q1. So, we had factored that in . The large transformation project coming to an end where we will recognize the revenue of the completion that was also factored in and that's why Q4 was stopped.

My question was more relating to the higher end of the guidance, but I get the point.

Yes, and then higher end of, the guidance also factored in our regular performance in the software business at the midpoint. And like the last two, three quarters, we saw a very good uptick. So, if that momentum continued, then we were kind of inching a little bit above our midpoint. So, those were the rationale for the previous guidance. And now also we are at the midpoint organic exactly the same.

And last question on software, could you elaborate a bit on that? Is it more a timing issue or are you seeing client’s kind of maybe behave a little differently?

No, I think the client behavior is not changed. And in fact, there is definitely a very good acceptance and a renewal rate, all of that has gone up. Some of the renewals and new closures that we were expecting to happen in December did not happen. Now, this should not be interpreted that the shortfall will get made up in Q4 because there is no certainty of the outcomes on the transactions which did not happen in Q3. So, we still bake in the low single-digit type of growth for the software business on a full year basis.

Thank you. The next question is from the line of Abhinav Ganeshan from SBI Pension Fund. Please go ahead.

I just wanted to understand one small clarification - do you think there can be any impact on your BFSI vertical going forward due to the forest fires which have happened in California. If I look at it, we are working with 3 of the large 5 insurance players which are focused in California. So, if you can give some color on that, that would be useful.

At this point, we have not seen any impact. I think it's an evolving situation and I think when similar things happen, clients want to bring more optimization and things like that. But these are very large nationwide insurers. So, we think the business will continue to be robust in these clients at this point. And, it's a little early to even get a view of what the impacts could be.

Thank you. The next question comes from the line of Vibhor Singhal from Nuvama Equities, please go ahead.

CVK, just wanted to get some color on the manufacturing vertical. I think a couple of quarters ago we had called out that we had seen some weakness in the German automakers and overall vertical. What is it that you are picking up at this point of time and if there is still weakness, do you believe that will persist for some time and your overall outlook on how we should look at the sector from the next three months perspective?

Manufacturing ex-automotive looks good. We see discretionary spend and some of the projects are driven by SAP. If you look at my open demand for manufacturing, the numbers are higher than what it was at the end of September. Automotive continues to remain challenged. I think there will probably be one or two more quarters of decline before some green shoots will come. The reason I am saying this is while there is pressure and there are declines, it's also an opportunity for us to construct large transformative type of deals. We're seeing some traction there and over it is still a couple of quarters away before something meaningful translates.

Got it. That was very helpful. My second question is on a different retail vertical. This vertical had typically been quite weak all through the last year for entire industry. We had one of your peers recently talking about the vertical bottoming out and we too have delivered quite a handsome performance in this vertical in this quarter. So, if you could just throw some light on what are the moving parts in thi s vertical, do you think most of these consumer companies or which pockets are the ones which are seeing this kind of momentum? And specifically, is it more US retail or Europe retail, which is kind of showing a stronger performance than the other one?

Yes, our performance is driven by the US Retail CPG client base. Of course, there is one big transformation project which came to an end which created the double-digit sequential revenue growth. But even if I exclude that, there has been some good momentum in three or four large clients in this segment. The open positions are also, may not be as significantly higher like in FS, Tech and other verticals, but Retail and CPG is also showing some improvement more in the US.

And could it be just a quarterly thing that this was a quarter in which there were holidays and a bit of momentum that these vertical catches or do you think this at least at this point of time appears to be sustainable?

No, I think it's very correlated to the wins. So, the next quarter you will see a dip in retail CPG because the big project is over and that will have an impact. But our general booking is higher, but it is not going to compensate for this dip. But overall, the pipeline in this segment is looking good.

Thank you. The next question is from the line of Rishi Jhunjhunwala from IIFL Institutional Equities. Please go ahead.

Just a couple of questions. Firstly, can you clarify once again, you said minus 1.32% to plus 0.6% 4Q implied growth. One is, did you mention it for services and is it organic or does it already include the impact of HPE asset?

I specifically said for services organic Q4 ask rate minus 1.32% to plus 0.6%.

Understood. Okay, great. The other question is on just the broad-based nature of growth. If you look at it from a client concentration perspective, our top five clients are pretty much growing at 30% plus for the last four quarters. So, a large part of our growth this year has been primarily attributable to the top five. Just wanted to understand, are you seeing clear signs of growth spreading to your non -top five and even beyond top 20? Given that you have made some comments on the ACV side, but just wanted to understand whether is growth becoming a bit more broad -based versus what we have seen in the last year or so?

Yes, I think at a macro level, what your conclusions are correct, but if you just adjust the state street divestiture and adjust for one large program where we had the second-year impact, then you will see a much more broad -based growth. So, these two are some specific items which might kind of compensate for some of the things. Across many verticals, you will see the same momentum. So, I think with this data point, you should be able to arrive at a slightly different conclusion.

Thank you. The next question is from the line of Kumar Rakesh from BNP Paribas. Please go ahead.

My first question, CVK, was around the mega telecom deal which we have. There is a planned ramp down in the 4th Quarter . Is there any other background on any of the changes which you are aware of over the next one year, which may be coming up?

Next one year, nothing that kind of stands out because we didn't do a mega deal outside of that deal last year.

Okay, and in this mega deal, there's only one planned ramp down which will play out in the 4th quarter.

Yes, I think a very small piece in Q1 as I mentioned earlier, but largely it should be done in Q4.

Got it. Secondly, on your software business, we have seen despite revenue coming down on a YoY basis, the margin was pretty strong, actually among the highest which we have seen in this quarter. Similarly, last quarter also, the margin was pretty strong. So, is there any change in the mix of products which you are selling? Is it just a quarterly phenomenon?

Maybe Shiv, you can respond, and I will add something more.

So, the Q3 is a seasonally strong quarter for us for software, but the margins this quarter improved because of two factors. One is the reduced cost as well as lower amortization benefit, we got in this quarter. So, these two factors added to the improved margin in this quarter.

And also, to add, we had discontinued some products as well. So, that also helps us slightly improve the margins.

Yes, so that should have reflected in the lower amortization as well.

Yes.

Can you quantify if possible, how much of that benefit is coming from your amortization?

I think we didn't want to call out the by service segment how much amortization.

Thank you. The next question is from the line of Sandeep Shah from Equirus Securities. Please go ahead.

CVK, if I understood correctly, last year in the 1st quarter, we called out close to a 2% QoQ dip because of the normal seasonal softness in services business, offshoring in one of the large BFSI deal and some revenue run downs in the discretionary sales. While entering in the 1st Quarter of this coming financial year, FY26, seasonal softness may continue but the other two parts may not continue. In that scenario, one can directionally believe that the 1Q FY26 as a start could be better than 1Q FY25?

I think your observation that two of the three factors will not play out in Q1 of FY26, but I don’t want to give a commitment on how Q1 will really play out. Qualitatively, the three things that contributed in FY25 Q1, only one of them, which is the normal seasonality productivity benefit. Only that will play out. Beyond that, of course, it all depends on how this quarter goes and the bookings and a lot of other elements would come into play.

Okay, fair enough. And second, on discretionary spend revival, do you see across most verticals or which verticals you believe it has not been happening? Is it more beyond BFSI and Tech services?

Yes, I think it's across the board except we still are not seeing any pickup in Life sciences and Healthcare and even the segment which we call as public services which is what energy, oil and gas, utilities, TTL and then Public Services. These two we still don't see. All the other five verticals we are seeing open demand from end of September to end of December has gone up. And it's an improving trend.

Okay, thanks. And the last question to the CFO . I think you called out 20 bps impact because of the M&A this quarter. So, I just wanted to know what it could be, looks like for one month. In the coming quarter it may have an incremental 40 bps impact or lower than that because some of the non -recurring M&A related costs may not come in the 4th Quarter.

It's going to be around the same range because we did have some integration cost also in this quarter so I don't expect it becoming 40 basis point.

The recurring component will remain there is.

Because when we acquire, initially start with the amortization of some of the intangible effects also so that will continue but not the initial integration cost.

Thank you. The next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.

Two questions from my end. So, the first one is that, see, if you look at the software revenue in the current quarter and compare it with the 1st quarter of this year, I compare it with the 1st quarter because the 1st quarter revenue in this year and the last year was the same . The differential this time is $67 million versus $87 million during the same period in the prior year. Now you also mentioned that one shouldn't assume that the shortfall will come back. So, does this mean that this is like a loss revenue and this is a new base revenue run rate for this business? Second is this really driven by the shutting down of your products or it is just a client has sort of chosen not to sort of renew something.

Yes, so I mean, I think when I said that you should not extrapolate the comment that some of the renewals and some new opportunity discussions got delayed, you should not extrapolate to Q4 because those outcomes are still not clear. And these are the customers could decide not to renew, or they may decide not to expand on the renewals. So, there are many scenarios. So, it's still subjective and it's not like a sure shot it will come in Q4. So, I think that's why we called out a caution. And what was the other question?

No, I think that covers it. The second question is, I think, see over the last 18 months, we really have not seen any meaningful spending from clients. So, considering there has been a lull, there are two scenarios. One is that do you think that there will be, because they're not doing spending and you have increasing technical debt, no matter the macro, there will be a pickup in spending. Is that a fair way to assume things? Or do you think that there was an overspending earlier and thereby the 18 months didn't have it? So, how are you thinking about it broadly?

Yes, I think I did touch upon this in Investor Day as well. I think some of the challenges that the industry faced were also two parts. One is that during COVID there was a steep increase in spend, a moderation of that created the decline for a few quarters, maybe starting from December 2022. And the second one, of course, because of the macro, there is some tightness in the decline budgets and spending and reprioritization that has been happening. I think the reprioritization topic, while s till it is relevant, but we are seeing customers at least modernizing data, cloud migration, and app modernization. These conversations are moving forward with some starting of projects. So, I think that is the difference. And that trend, we saw it last quarter. In FS, we were seeing some green shoots in tech, and that has really played out well, and now we're seeing in other verticals, barring the couple that I called out. So, I think with this factor mod erating, customer spending should improve, as we've seen in the last couple of quarters.

Thank you. The next question is from the line of Ravi Menon from Macquarie. Please go ahead.

Congrats guys on the broad -based growth and the improvement in ACV. What is your take on how to think about how HCL Tech is positioned in the competitive space when demand is picking up? I mean, historically it's been thought that you guys are not very strong in applications and not very strong in discretionary spending or when s pending picks up, you will not benefit as much as your peer group. How should we think about that now?

So, Ravi, I mean, I think this question has been asked in the past, but if you really see - the proof point was FY23, where when the spending was robust and without a large deal, we delivered the highest organic growth in services across industry. So, I think that we should put to rest about our ability to maximize when there is a strong spending environment comes up, both in engineering and in application space. We feel pretty confident, and we are gearing up for an environment where there will be improving spend. It may not be so rapid like the way it happened during COVID, but it will, we are seeing the right signals, and we are tracking it highly, with a very high level of precision. And I think our conclusions are based on that and we are well prepared. However, we should just keep in mind that there could be significant changes in the policy environment and the over all business landscape in the coming days and weeks and months. So, which might change some of the clients thinking and maybe spending patterns and reprioritization. Barring that, I think we are really well prepared to harness the upcoming momentum.

Thanks, CVK. A quick question on the H1B issue. And I know that HCL Tech historically has moved away from visa dependency, and I think you had more than 70% of your workforce in the US location. Would that roughly be correct?

Yes, I would request Ram to respond to that please.

Yes, but in fact it's closer to 80% of the US employee base is now local. So, you're right, the reliance on H1B is one of the lowest in industry in proportionate terms. So, we don't expect any impact because of the H1B changes.

Thank you. One last question from me on the ER&D side. You were talking about how this quarter, we might still see some softness in ER&D, but it looks like that's done well. Were there some unexpected areas of spend that picked up?

No, I think, my comment was not on overall ER&D. I think my comment was specific to automotive segment, of course, which has a contribution towards ER&D. But the telecom, tech; telecom, the nature of deals are a little different, but tech has got good pr ojects. And even some of the manufacturing, I think our open positions have significantly increased in ER&D. And right now, we are trying to see how best we can fulfill that is our biggest priority for this quarter because some of this happen ed towards the end of the last three weeks or last four weeks of the quarter. And I mean, the overall ER&D in the two quarters we've had good growth organically as well. So, we think that momentum would continue.

Thank you. Ladies and gentlemen, we will take that as a 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 for joining this call and we are looking forward to some exciting times in the overall business landscape and we will keep you updated as we progress and thank you for your continued support and have a good evening.

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