FY26 closed 3.9% / 17.2% EBIT vs raised mid-year 4-4.5%.

Quite curious to know how are these Advanced AI revenues being offered to clients? Are they mostly through standalone POCs or standalone projects or are they embedded into a bread-and-butter business? And secondly, how do you see HCL Tech's revenue mix evolve over the next 3 to 4 years? Do we expect IPs to contribute more and more percentage of our revenues? And lastly, on the restructuring charges, would we expect a similar sort of quantum of hit over the next couple of quarters as well?

Thank you, Abhishek, for a lot of interesting questions and first is Advanced AI. It's got a number of different ways of billing. For example, a lot of inference silicon build work are more fixed price projects which we take with clients and deliver. It has got a lot of scaling and reusable components. That's number one. And for example, for the AI Factory, the implementation could be even time and material, but there is a run piece which is based on per rack. Then there are a lot of custom AI solutions that we are building for our clients, which is continuing to be contracted in the traditional ways. Most of them in some kind of a fixed price model, because we also leverage some solution accelerator there. But there could be a number of time and material also. On top of it, there is an IP element. Like, for example, AI Force is being used in the SDLC transformation. The AI Force has got a licensing price list, and that's what we are considering as Advanced AI revenue. All the services that are being delivered is not considered in this category. There are a couple of small products in HCL Software. They are also being sold as IPs. So, right now, the IP component is small. Now, going into your next question, on what do we expect our IP trajectory to evolve. We believe this industry will have to evolve from being a pure labor-based service provider to people plus IP and platform-based service provider. When you have the platform as a third-party platform, there is very little leverage, very little stickiness that we can build. And we can really deliver very good quality vertical IP solutions, which can be replicated across customers. So, that is why we are investing. However, the investment that is required to create that intelligence layer, that's not something we are taking on ourselves. We are leveraging the intelligence layer created by OpenAI and Llama and other tech companies. We are creating IPs, which make this intelligent layer a lot more usable, scalable and relevant for the enterprise. This is the sweet spot we are focused on, and everything goes through a rigorous exercise. We are open to invest. We don't have a full picture on how much investment this will need, but this is required for the long-term vibrancy of the business and is a very good investment to make. We have already identified a few products. AI Force is, what I would strongly call, the killer app, which is really making a lot of big deals happen. We are competing head-on with all the big players who have a lot of AI mindshare. We have been able to showcase the technical depth of the product. Especially when the client evaluates by getting their hands dirty, we come out winners. So, it's a strong proposition. It's a big strategic initiative for us. We will not hesitate to make the right investments to make this a big success. I don't have a revenue number as to what our IP will be, but for sure, it is going to consistently increase in our services portfolio. So, regarding restructuring, Abhishek, in July, we announced around 40 basis point impact of restructuring for the full year. We expect this to be slightly on the higher side for the full year based on visibility we have right now. As you would have noticed, we started this exercise in Q2, and this will continue through Q3, and we expect to have some spillover in Q4 as well.

On the EBIT margin. When adjusted for that 55 basis points of restructuring, you are almost back at your 18% to 19% range, and you should surely get some cost benefits from restructuring going into next year. The question I had is how much will the benefit be once you finish the restructuring? On a structural basis, how much margin improvement should we factor in because of the restructuring?

As we said, we have given the guidance for this year, 17% to 18%. At the time of lowering the guidance last quarter, we talked about one-offs which are hurting us. We also clarified that we are not structurally lowering our margin band. But in terms of what it is going to be next year, we would like to address that question when we give our next year guidance in April. It's difficult to call out. Some of the one-offs we talked about, we have recouped the benefits. The restructuring process is still on. We have just started this exercise in this quarter. It's going to continue for next quarter and maybe it is going to spill over to Q4 also. So, it's difficult to exactly pinpoint the benefit we are going to get.

If you look at the IMS cycles, they have their own rhythm, a little bit different from the app development and modernization. So, do you see the next up cycle in the IMS space beginning anytime soon, partly led by this CPU to GPU upgrade of the existing data centers?

Yes, we are seeing some traction. From an enterprise side, it's still not picked up in a big way. But there are some Edge use cases, where we see Edge Compute with GPUs becoming relevant. I think it's early days to look for a large cycle of enterprise upgrade of CPUs to GPUs.

CVK, you mentioned that we are proactively cannibalizing the existing business and also in some of the SOWs that we have got renewal, the existing SOWs seem to have been offset through new scope, etc. Now, in that context, I just want to understand how relevant is the net new number? Because it is coming at the expense of renewals, so maybe some color on how has the overall deal bookings growth has been? And if we can, going ahead, provide full TCV that would give us the full picture of renewal plus net new.

We track renewals very closely internally, but we are not ready with the numbers to share. But from a growth perspective, it is the net new booking, which matters. And obviously, there is dependence on some ramp downs, which has been quite stable. We don't see anything unusual now. So, our net new booking will be a very good correlation for growth. Now, the renewal deflation, I called out last quarter in 8 of the 9 deals, we got additional business. This time, we called out among the top 10, only 5 of them gave us additional business. Other 5 of them had specific SOWs, which saw some deflation. But what is comforting is these are large clients of us. One segment of the work, there is some deflation. And there is a lot of book of business that we can consolidate with these large clients based on the proof points of proactively delivering AI-led productivity. I think that is a very good indicator for you to see how things are playing out.

Just wanted to pick your brains on the auto vertical. I think the manufacturing vertical seems to have kind of lifted a bit from the last quarter, but where exactly do we see that? Do you still see weakness in the auto segment, especially in European markets? And what is our outlook for that segment, let us say within the next 2-3 quarters, do you think the weakness will persist?

Yes, auto vertical pipeline continues to look very strong. But decision making is just not happening. It is taking its own time. Some of the opportunities are replacing incumbents. So, they are all taking a long time. But given the stress in the industry, it is only a matter of time when we see some large outsourcing possibilities, but we have to wait it out.

Out of top 10 renewals, 5 had increased scope, increased ACV. So, possible to give a sense of what the aggregate trend for those 10 deals would have looked like? What kind of growth in ACV would it have translated for all of those 10 deals put together?

Surendra, we don't have the numbers ready, and we didn't intend to share. This was only to give a directional view of our proactive approach of pursuing the clients to implement AI in a very meaningful way. We are also tracking to get some comfort if our hypothesis of proactively driving this, will drive more mindshare and more wallet share. At this point, we feel confident, but the difference is not every service provider is being proactive. A lot of providers are defensive as well, and that in itself is an opportunity for us.

CVK, in one of the replies of the AI impact on the different horizontals, you called out it will take another 2-3 years, because there are new things which need to be done before AI can be scaled up by enterprises like modernization and other stuff. So, in that scenario, is it fair to assume that in the next 2-3 years, AI can be additive in terms of demand rather than deflating? And the second question is on EBIT margin. This year, we have a lot of one-offs. So, why we are still not seeing that the next year we can be back to 18%-19% EBIT margin? What holds you back to commit that?

So, Sandeep, I think you were a little confused on this modernization thing. Modernization is an independent stream. What I mentioned about scaling in the existing SDLC landscape is to get a small group of people, fully use leverage, train them and measure productivity, ensure that we are getting the productivity and the entire change management for a large software development organization. That is why I am saying it is going to take a couple of years. Modernization continues to be a separate motion. A lot of customers are looking at modernization. This is definitely an additive in terms of overall revenue for the industry. Now, with all puts and takes, where will it land depends on what the portfolio one has and you have a sense of our portfolio, so that is broadly where it is. Just to add, Sandeep, we are on track to recoup the margins we have emphasized in the last quarter, like one-off reversals and improved utilization. However, our clear focus is to cement our position as industry growth leader during this tectonic shift in the industry. And to that end, we will prioritize investment in AI to help us grow with disciplined margins. As mentioned earlier, we will call out the margins when we do our FY27 guidance in April.