HCL Technologies hosted a conference call on July 12, 2024. In the conference call the company was represented by Mr C Vijayakumar-CEO & MD and Mr Prateek Aggarwal-CFO.

Key takeaways of the call

Q1 is generally a soft quarter for the company and the company has performed better than the expectation.

Q1FY2025:

For Q1FY2025 total revenue stood at US$ 3364 million down 1.9% QoQ and up by 5.1% YoY in CC terms.

Services revenue declined by 1.9% QoQ and was up by 5.8% YoY in CC terms. IT and Business services declined by 1.5% QoQ and grew by 5.3% YoY in cc terms while Engineering, and R&D services declined by 3.5% QoQ and grew by 8.4%YoY in CC terms.

Digital revenue was up by 6% YoY in CC terms.

HCL software continued to progress in the right direction. Software revenue grew by 3.5% YoY in CC terms. Software ARR(Average recurring revenue) stood at 1.01 billion in Q1FY2025.

Geography growth was led by America which grew 8% YoY in CC terms followed by Europe which grew by 3% YoY in CC terms. While RoW declined by 3.6% YoY in CC terms.

Vertical wise manufacturing grew by 3.5% YoY in CC terms, Telecommunication, media, publishing and entertainment grew by 69.2% YoY in CC terms, Retail and RPG grew by 9.7% YoY in CC terms, technology and services grew by 2.7% YoY in CC terms. While financial services, life sciences,  and public services declined by 1.3%, 4.1% and 3.7% respectively YoY in CC terms. Decline was due to completion of some of the projects.

Margin: EBIT margin came in at 17.1% down 50 bps QoQ and up 13 bps YoY. Services segment margin declined by 51 bps QoQ which led to decline of 50 bps at company level on a QOQ basis. Services revenue declined which peculated to decline in margins in Q1FY2025.

Annual productivity impact due to decline in revenues QoQ has been offset by efficiency and exchange rate benefit of 10 bps.

Other income stood at Rs 1103 crore in Q1FY2025 as against Rs 334 crore in Q1FY2024.

Divestment: The company was providing BPO services Statestreet International Holdings, USA and its affiliates through a joint Venture. The company has divested the JV in favour of Statestreet and the agreement for related services has also been terminated. HCL Technology has received a sum of Rs 1439 crore and other net assets of Rs 106 crore. This has also resulted in profit due to divestment which is included in other income.

Client matrix: The company added 2 accounts in the 100 million + category , 6 accounts in the 20 million + category, 20 accounts in 10 million + category, 14 accounts in 5 million + category and 4 accounts in 1 million + category on a YoY basis.

Bookings:

Bookings for the quarter stood at US$ 1960 million. It was mix of both small and large deals.

Pipeline continues to remain very strong and remain healthy. Pipeline is strong and is across large and medium size deals.

Human Resource:

Current employee count is 219401.  Head count declined by 8080 of which 7398 was due to divesture of Statestreet JV.

Fresher’s addition was 1078 in Q1FY2025 and the company plans to add 10000 fresher’s in FY2025.

Attrition continues to come down and LTM attrition stood at 12.8%.

The company targets to train 50000 employees in AI and Gen AI tools of which 33% is already achieved.

Guidance:

Total revenue at company level growth is expected to be in the range of 3-5% YoY in CC terms and services CC revenue growth is expected to be in the range of 3-5% YoY.

EBIT margin is expected to be in the range of 18-19%. The company is focussed on improving the margins.

Revenue growth guidance and EBIT margin guidance is based on organic growth.

Outlook:

Q1 performance was in line with expectation and the company expects all the vertical and geographies to grow in Q2.

Financial services segment is expected to be impacted in Q2 FY2025 due to divestment of Statestreet JV. However it is expected to grow post Q2. The growth will be led by cost efficiency deals. In general discretionary spending is as similar to last quarter. At company level, divestment of Statestreet will have an impact of 80 bps on revenues and 90 bps on services revenue in Q2.

In manufacturing vertical, the company expects good growth in Q2 and it is also witnessing good traction.

The company expects discretionary spending to be similar to last year. The environment has not changed in Q1. The company expects broad based growth in Q2.

Dividend: The board has declared interim dividend of Rs 12 per equity share.

Management Commentary:

Commenting on the performance Roshni Nadar Malhotra-Chairperson said “With our future-ready portfolio, we are well placed to tap emerging opportunities led by GenAI. We remain committed to doing business sustainably and responsibly as we continue to supercharge progress for our clients.”

C VijayaKumar-CEO & MD said “We are pleased to report another quarter of industry-leading performance with 5.6 % YoY revenue growth on constant currency basis. Our Q1 Revenue and EBIT performance was slightly better than our expectations. We clocked in $2B TCV of new business Bookings. We are confident of decent growth in the coming quarters, positioning us well to deliver our revenue guidance for the year as clients continue to spend on GenAI and other emerging technologies.”

Prateek Agarwal-CFO said “HCLTech delivered an INR revenue growth of 6.7% YoY, healthy given the global environment. EBIT margins came in at 17.1%, steady on YoY basis. We delivered PAT of ?4,257 Crores for the quarter, which translates to YoY growth of 20.4%. Our cashflow generation remains robust with LTM FCF at ?21,637 Crores, 133% of PAT and 88% of EBITDA. We remain committed to improving our capital efficiency and are pleased to report Last Twelve Month (LTM) ROIC for the company is up 350 bps YoY at 34.6% and for Services business is up 476 bps YoY at 42.8%.”