Bucking the industry trend of a weak Q3 performance, the country’s third largest IT firm, HCLTech on Friday reported a 13.5% sequential rise in net profit to Rs 4,350 crore for the October-December quarter, while its revenue rose 6.7% quarter-on-quarter to Rs 28,446 crore. The company beat Bloomberg consensus estimate on both the fronts which were pegged at Rs 4,124 crore and 28,075 crore respectively.
However, as the slump in discretionary spending is expected to continue, the company trimmed the upper end of its FY24 revenue growth guidance to 5-5.5% from 5-6%.
This is the second time HCLTech has cut its full-year growth guidance in FY24, after initially guiding revenue growth between 6-8%. Indian IT companies have been grappling with a slowdown in client spending since last year due to a weak macroeconomic environment, leading to delayed deal wins. HCLTech, however, sees certain areas where the hit to spending was minimal.
“While we still don’t see an uptick in the discretionary spend, where it remains pretty similar to what it was in the last quarter, there is still a portion of tech spend that is looking resilient. Cloud Migration, SAP core and data modernisation, cybersecurity automation and advanced analytics are the areas where we think the spend is still robust,” CEO and MD C Vijayakumar said in a post-earnings conference.
During the quarter, the company’s new deal wins stood at $1.9 billion, which includes 18 large deals. The software business — which usually sees favourable seasonality in Q3 — recorded sequential revenue growth of 32% to Rs 3,364 crore, while that of engineering and R&D services segment rose 8.7% on quarter to Rs 4,673 crore, including impact of its recent acquisition of german automotive engineering services firm ASAP Group.
HCLTech’s largest segment — IT and business services rose 1.9% on quarter to Rs 20,409.
The combined services business was mainly buoyed by its $2.1 billion-Verizon deal, that pushed up revenue growth in its telecom vertical by about 26% sequentially. Besides telecom, manufacturing vertical recorded a 7.6% revenue growth over the last quarter. Meanwhile, it’s largest vertical, financial services, saw sequential contraction of 1.3% in revenue growth mainly due to furloughs.
The Ebit margin expanded 126 basis points sequentially to a record 19.8% in Q3. For the full-year, the company kept its Ebit margin guidance unchanged at 18-19%. For the current quarter, HCLTech expects “good growth” in the services business, while its software business is likely to see some seasonality.
People Metrics
During the quarter, HCLTech net added 3,617 employees, following two consecutive quarters of headcount reduction. Its total employee count now stands at 224,756. The company also recorded the lowest attrition in the last several quarter of 12.8%.
In Q3, the company added 3,818 freshers, which took the total freshers hired during this fiscal year to 9,000. HCLTech had earlier reduced its annual hiring target to 10,000 freshers from 15,000. It had also skipped salary increments for mid and senior level managers. However, the management noted that attrition in this segment has been in low-single digits.
Gen AI deals
Among the new deal wins in Q3, HCLTech said it had signed 31 deals for generative AI-based solutions, but the company flagged that most of these were comparatively smaller in deal size.
“While we see great potential in generative AI in the near term, the programs in this segment will be small. We signed 31 deals in Gen AI but most of them have sub million-dollar ticket sizes. We are expecting them to ramp up in the coming quarters,” Vijayakumar said.
The company signed deals for a range of Gen AI-based solutions, including developing a conversational Gen AI platform to transform user interactions, developing Gen AI-based mobile payments solution that will accept user inputs through natural language and formulate a money transfer request for user approval and developing a real-time ESG reporting and analytics tools using Gen AI.