More Stories

Informist, Monday, Oct. 14, 2024

MUMBAI – HCL Technologies Ltd. is confident of achieving its sales growth and margin guidance for the current financial year, as demand in the financial services vertical is recovering steadily, and the overall services and products businesses are also faring well, Managing Director and Chief Executive Officer C. Vijayakumar said at a post-earnings press conference on Monday. However, the company remains cautious about extrapolating its better-than-expected performance in Apr-Sept to the remainder of the year, and believes macroeconomic and geopolitical issues around the world could still hurt the demand for information technology services. 

This concern has, in fact, stopped the company from raising the upper end of the sales guidance for 2024-25 (Apr-Mar). Earlier in the day, HCL Technologies raised its constant currency sales guidance to 3.5-5.0% for the year. The Street had expected the company to retain its earlier guidance of 3.0-5.0%.

To achieve the lower end of the guidance, the company needs only flattish sales growth in both Oct-Dec and Jan-Mar, as the growth in the first half of the fiscal has been above the company's internal assumptions, Vijayakumar said. But, to achieve the higher end of the guidance, the company must grow its constant currency sales at 2% during Oct-Dec and Jan-Mar each, he said.

"While we are seeing good demand in financial and other verticals, we are cautious about extrapolating this for a longer period of time," he said. "We remain cognisant of global and geopolitical issues which can impact growth."

Moreover, whether the company achieves the upper end of its guided range will depend on the sustenance of this demand momentum seen in Jul-Sept, as well as the company's ability to execute contracts while keeping efficiency higher. HCL Technologies acknowledged that demand was better in Jul-Sept than in Apr-Jun. Even discretionary IT spending was better, but the company said the exact impact of the rate cut by the US Federal Reserve may be difficult to quantify. 

During the September quarter, the company reported a 1.6% sequential rise in constant currency sales, after a 1.6% fall in Apr-Jun. For Jul-Sept, its consolidated net sales were INR 288.6 billion, up nearly 3% on quarter. The revenue was higher than the Street's estimate of INR 286 billion. 

The company's consolidated net profit was INR 42.35 billion in Jul-Sept, unchanged from a quarter ago. Analysts had expected the bottom line to be INR 40.3 billion. The company's performance would have been even better, if not for the hit to its financial services vertical due to a stake sale in State Street International. Excluding this impact, the financial services vertical saw an over 4% on-quarter rise in sales, which meant that the overall services business revenue was higher than expected for Jul-Sept, Vijayakumar said. 

HCL Technologies won new deals worth $2.22 bln during the quarter, up from $1.96 bln it had signed in the June quarter. The total number of deal wins was around 20, which comprised both small and large deals. 

HCL Technologies also highlighted that the financial services vertical was seeing strong demand across geographies, while other segments such as lifesciences, retail and technology are doing well, even as automobile and aviation are witnessing some stress.  

MARGINS

India's third-largest IT company has also maintained its operating margin guidance of 18.0-19.0%, as widely expected by analysts. The guidance has been retained and not raised, as the company expects wage hikes to impact profitability in Oct-Dec and Jan-Mar to the extent of 65-80 basis points and 50-60 basis points, respectively. It expects 12-15% wage increase for top performing employees. 

The company also expects furloughs in Oct-Dec to be similar to the previous year. A furlough is a suspension or discharge of a worker or workers on account of economic conditions or shortage of work, especially when temporary. 

For Jul-Sept, the company reported a 150-bps expansion in earnings before interest and tax margin to 18.6%. This was driven by better profitability of HCLSoftware, improvement in services businesses and cross-currency movements. 

HCL Technologies will also hire more freshers from campuses this year, though it will look out for those specialising in data analytics and artifical intelligence, and such. The compensation for these freshers could be higher than the typical salaries, it said. The company's headcount dipped slightly in Jul-Sept due to cost efficiency measures. 

Shares of the company closed nearly 1% higher at INR 1,855.90 on the National Stock Exchange on Monday. The company announced its earnings after market hours.  End

US$1 = INR 84.06

Reported by Apoorva Choubey, Avishek Rakshit and Darshan Nakhwa

Edited by Tanima Banerjee

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000 

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.