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  • 13 Oct 2022
  • ICICIdirect Research

HCL Tech guides for 16-17% CC growth in IT services in FY23

HCLTECH - 1751 Change: -5.05 (-0.29 %)

News:

 The company’s IT services revenues (74% mix) grew 5.3%in CC terms while ER&D revenues (17% mix) grew 5% in CC. P&P business (~10% mix) , as expected , was down 7.8% QoQ due to seasonality in licensing revenues. Dollar revenues for IT services were up 3.1% QoQ at US$2,268 mn (cross currency headwinds of 220 bps) while at the company level, dollar revenues grew 1.9% to US$3,082 mn. EBIT margins for IT services improved 100 bps QoQ to 16.7%, led by operating leverage, pricing benefits, while company level EBIT margins improved by 93bps to 18%. Geography wise North America (65% of the mix), reported 4.7% QoQ CC growth while Europe’s growth in CC was also stronger at 6.9% QoQ. Vertical wise, in CC terms, Manufacturing, Lifesciences, Telecom/Media and Financial services reported 10.9%, 5.1%, 4.1% and 3.7% QoQ, growth respectively. LTM attrition was flat QoQ at 23.8%. The company added 8359 employees (vs. 2089 in Q1) during the quarter taking its headcount to 219,325. TCV (new deal wins) was up 16% QoQ and 6% YoY to US$2,384mn.

View:

HCL Tech’s IT services growth guidance is much ahead of Infosys for F23. On the demand side, it is not seeing any slowdown on tech spending as clients continue to spend on both revenue enhancements as well cost optimisation programs. The company has reported strong growth in IT services ( four out of last five quarters, it has reported 5%+ CC QoQ growth ) driven by continued strong order book. The company aspires to win TCV of US$2-2.5 bn every quarter, which is expected to provide revenue visibility ahead. Pricing (it has taken price hike on all existing as well new contracts since January 2022) along with easing of attrition, moderation of subcontractor costs, utilisation is expected to help it to achieve margins in the guidance band.

Impact:

Positive.