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Informist, Monday, Jan. 13, 2025

 

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--HCL Tech: Saw strong earnings momentum Oct-Dec due to recent deal wins
--CONTEXT: Comments by HCL Tech management in post-earnings analyst call
--HCL Tech: Seeing clients' interest in data AI, generative AI
--HCL Tech: Small deals converting quicker, large ones taking time
--HCL Tech: See overall improvement in discretionary spending environment
--HCL Tech cautions on world landscape changes hitting 2025 client spends
--HCL Tech: Some software business deals closure expected Dec didn't happen
--HCL Tech: See automotive vertical facing challenges for 1-2 more quarters
--HCL Tech: Discontinued some products in software business
--HCL Tech: Software business Oct-Dec margins strong on lower amortisation
--HCL Tech: Software business Oct-Dec margins strong amid lower costs
--HCL Tech: Don't see pick-up in healthcare, public svcs' discretionary spend
 

 

By Rajesh Gajra

 

NEW DELHI – There is a definite improvement in discretionary client spending environment in the information technology sector and this will aid earnings growth in 2025, HCL Technologies Ltd.'s management told analysts in a post-earnings conference call Monday. However, the management expressed caution on potential changes in the world landscape.

 

The management said "one should keep in mind that there could be significant changes in the policy environment and the overall business landscape in the coming days and weeks and months, which might change some of the clients' thinking and maybe spending patterns and reprioritisation." Barring this likelihood, the management said that HCL Technologies was well prepared and positioned to "harness the upcoming momentum."

 

HCL Tech's earnings for the December quarter met analysts' expectations on net profit but missed that on revenue. The company's consolidated net profit was up 8.4% sequentially at INR 45.91 billion, and the consolidated revenue was up 3.6% on quarter at INR 298.90 billion.

 

The company's consolidated earnings before interest and taxes rose 8.6% on quarter to INR 58.21 billion, while the earnings before interest, tax, depreciation, and amortisation went up to INR 68.60 billion from INR 63.69 billion a quarter ago.

 

Recent deal wins were a key factor in driving the strong earnings momentum in Oct-Dec, the management said in the analyst concall. The company won 12 deals, seven from services segment and five from software segment in the December quarter, it said. "TCV (total contract value of outstanding deals) for Q3 (Oct-Dec) stands at 2.1 billion dollars with small deals growing stronger than the large deals in an era where large deals are getting broken to smaller chunks," the management said.

 

There were some deals in the software business segment whose closure, although uncertain, was expected in December but did not materialise, the management said. But the company was seeing good interest among clients in data-related artificial intelligence applications, as well as generative AI, it said.

 

To a query on manufacturing segment prospects, the management said the automotive part of the segment was still facing challenges, which are likely to persist for another couple of quarters. The company is also not seeing any pick-up in discretionary spending in healthcare vertical as well as in public services vertical, the management said.

 

In the HCLSoftware segment, the company reported strong margins for the December quarter, like it did in the previous quarter as well, due to lower amortisation costs and curtailed operating costs, the management said. The company also discontinued some products in software business which aided the margin expansion, it said. The EBIT margin in the software segment expanded to 34.5% in Oct-Dec from 25.6% in Jul-Sep. In Apr-Jun it was 20.5%.

 

With regard to raising the lower end of the revenue guidance, the management said 50 basis points of the 100 bps raise was due to the recent acquisition of Communications Technology Group. The company Monday raised the lower end of its constant currency consolidated revenue growth guidance for 2024-25 (Apr-Mar) to 4.5% from 3.5%.

 

With this, the FY25 guidance now is 4.5-5.0% compared to 3.5-5% a quarter ago. It has also raised the lower end of its FY25 services revenue growth guidance in constant currency terms to 4.5% from 3.5%, keeping the upper end guidance of 5% unchanged. The company Monday also said it was retaining the earnings before interest and tax margin at 18-19%.

 

On Monday, shares of HCL Tech ended 0.3% down at INR 1,989.40 rupees on the National Stock Exchange.  End

 

US$1 = INR 86.58

 

Edited by Ashish Shirke

 

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