The raise in HCLTech's growth guidance is bought revenue, and its cash is thinner

The raise is mostly acquired revenue

HCLTech raised the bottom of its revenue growth guidance for this fiscal year, in constant currency, and left the top where it was. It reads as a raise. But the new range now includes revenue from two businesses bought this year, which the April guidance had expressly left out. The company put their weight at 87 basis points, a basis point being a hundredth of a percentage point.

Take that out and the picture changes. By our arithmetic the organic midpoint is a shade lower than April's. The chief financial officer described the organic midpoint as broadly unchanged, and that is fair. For services the floor rose and the ceiling came down.

The acquired part is not a forecast of more deals. By our arithmetic it is only what the two purchases bring in if their current pace simply carries on through the year. The large contract signed in July adds nothing to revenue in the next two quarters, the CEO said. The floor moved up, and bought revenue now sits inside it. The top did not move.

Margin improved, and management means to spend it

Operating (EBIT) margin was 18.2% in the September quarter, against 16.9% the quarter before, and higher still before the restructuring cost. The range for the year did not move. If restructuring stopped and last quarter's pre-restructuring rate held, by our arithmetic the year would land in the upper half of that range, and whether the cost continues is for the second half to show.

Asked about a medium-term range, the CEO called a band above the current range a desired one but declined to commit, and said: "we will always want to invest to gain more capability and differentiation rather than optimize margins in this phase of the industry." A band like that was the company's guidance at the start of the previous fiscal year. It was cut to 17% to 18% a few months in, and the year ended at 17.2%, inside the cut range. Revenue growth for the year ended at 3.9% in constant currency, a tenth of a point under the 4% to 4.5% guided in January 2026; services grew 4.8%, inside its January range of 4.75% to 5.25%.

Cash is thinner, and software waits on a calendar

Net cash was $2.56 billion, against $3.51 billion six months earlier. Part of that fall is dividends and purchases: two dividends were paid, Jaspersoft and the HPE business were bought, and a stake was taken in Sarvam; neither the July nor the October call splits the fall. Free cash flow over the last twelve months was 87% of net income, well below the earlier pace, and dividends declared over the same twelve months took slightly more than that. Management blames a tax payment under a pricing agreement and a transfer into an external trust, and said conversion should revert to roughly all of profit or more as they leave the twelve-month window.

Software is the other open item. Its revenue fell on a year ago, in constant currency, while recurring revenue (ARR) grew without the newly bought Jaspersoft. In April the company put the fourth-quarter software fall down to delayed procurement; this quarter's fall it puts down to fewer multiyear licences coming up for renewal, which recognise most of their revenue upfront. Renewals come back over the following two fiscal years, it said, and the next quarter will step up.

What is still open

Advanced AI revenue reached $219 million last quarter, and by our arithmetic supplied about two-thirds of the rise in reported dollar revenue, which itself includes acquired revenue. The company credits AI mix with 32 basis points of the margin gain. If the CEO's "at least 7% to 10% higher" margin for AI services means percentage points, a mix shift of this size explains roughly a third of that, by our arithmetic. Either the premium is larger than stated or the gain is partly something else.

So four things are still open: the software step-up in the next quarter, AI growth with its margin premium intact, cash conversion back above profit, and a guidance floor that is reached without further purchases. In this report HCLTech pointed to ARR rather than software revenue, and to margin before restructuring. Both are fair measures. Both are also the measures that read best this quarter, and the next report will show whether they still do.