SOFTWARE BUSINESS DRIVES STRONG REVENUE; NET HIRING & PROJECT RAMP UP OTHER KEY POSITIVES

News: HCL Tech reported strong revenue growth led by strong performance in ER&D and software business. The company in CC terms reported a QoQ growth of 1.9% QoQ in IT Services (71.7% of revenue mix), 8.7% in ER&D services (16.4% of revenue mix) and 32% in Software segment (~12% of revenue mix). At the company level it reported a growth of 6% QoQ & 4.3% YoY in CC terms. The company’s growth vertical wise was led by TMPE segment (9.7% of mix) reporting a growth of 25.9% QoQ and Manufacturing (20.1% of mix) reporting a growth of 7.6% QoQ while BFSI largest segment (21.7% of mix) declined by 1.3% QoQ. Geography wise in CC terms Europe (29% of mix) grew by 5% aided by contribution from ASAP acquisition while Americas region (64.5% of mix) 3.1% QoQ. The company reported a margin of 19.3% expansion of 110 bps QoQ in Q3 largely driven by software business while Services margins declined. The company’s added 3,617 net employees including 3,818 freshers taking the total employee numbers to 224,756 and LTM attrition declined by 140 bps QoQ to 12.8%. The company during quarter won TCV of US$1.9 bn, down 17.9% YoY. The company for FY24 reduced the revenue guidance by 50bps at upper end to 5-5.5% revenue growth (including acquisitions) while it maintained the margin guidance in the range of 18-19%. The company declared interim dividend of Rs. 12 per share. 

HCL Tech reported strong revenue growth led by strong performance in ER&D and software business. The company in CC terms reported a QoQ growth of 1.9% QoQ in IT Services (71.7% of revenue mix), 8.7% in ER&D services (16.4% of revenue mix) and 32% in Software segment (~12% of revenue mix). At the company level it reported a growth of 6% QoQ & 4.3% YoY in CC terms. The company’s growth vertical wise was led by TMPE segment (9.7% of mix) reporting a growth of 25.9% QoQ and Manufacturing (20.1% of mix) reporting a growth of 7.6% QoQ while BFSI largest segment (21.7% of mix) declined by 1.3% QoQ. Geography wise in CC terms Europe (29% of mix) grew by 5% aided by contribution from ASAP acquisition while Americas region (64.5% of mix) 3.1% QoQ. The company reported a margin of 19.3% expansion of 110 bps QoQ in Q3 largely driven by software business while Services margins declined. The company’s added 3,617 net employees including 3,818 freshers taking the total employee numbers to 224,756 and LTM attrition declined by 140 bps QoQ to 12.8%. The company during quarter won TCV of US$1.9 bn, down 17.9% YoY. The company for FY24 reduced the revenue guidance by 50bps at upper end to 5-5.5% revenue growth (including acquisitions) while it maintained the margin guidance in the range of 18-19%. The company declared interim dividend of Rs. 12 per share. 

Views: The company performance was above expectations of street aided by the strong performance in Software and ER&D business (ASAP acquisition contribution of 1.1% to Services sequential growth). IT services reported a relative strong QoQ growth compared to other Tier I IT companies (TCS, Infosys & Wipro) due to ramp up of Verizon deal. The deal wins during the quarter, however, was relatively soft with no changes in the discretionary spending pattern. Net positive hiring vs. net negative for other tier 1 players points towards faster ramp up in projects & continued progress towards pyramid optimisation.

Impact: Positive