- Revenue: $3.36 billion, a decline of 1.6% sequentially, but a growth of 5.6% year on year in constant currency terms.
- Operating Margin: 17.1%, a decrease of 50 basis points sequentially, but an increase of 13 basis points year on year.
- Net Income: $496 million, 14.7% in USD terms, an increase of 3.4% sequentially and 15.3% year on year.
- Services Revenue: $3.041 billion, down 1.9% sequentially, up 5.8% year on year.
- IT and Business Services Revenue: $2.5 billion, down 1.5% sequentially, up 5.3% year on year.
- Engineering and R&D Services Revenue: Declined 3.5% sequentially, up 8.4% year on year.
- HCL Software Revenue: Grew 3.5% year on year, 0.4% sequentially in constant currency.
- Annual Recurring Revenue (ARR): $1.01 billion.
- Geographical Performance: Europe grew 3%, Americas grew 8%, rest of the world declined 3.6% year on year in constant currency.
- Vertical Performance: Telecom and media grew 69.2%, retail and CPG grew 9.7%, manufacturing grew 3.5%, life sciences and healthcare declined 4.1% year on year in constant currency.
- Total Contract Value (TCV) of Bookings: $1.96 billion.
- Employee Count: 219,401, a sequential reduction of 3.6%.
- Voluntary Attrition Rate: 12.8% for IT services.
- Return on Invested Capital (ROIC): 42.8% for services, 16.1% for software, 34.6% overall.
- Operating Cash Flow (OCF): $2.7 billion, a 9% increase year on year.
- Free Cash Flow (FCF): $2.6 billion, a 12% increase year on year.
- Gross Cash: $3.26 billion.
- Net Cash: $2.985 billion.
- Days Sales Outstanding (DSO): 82 days, an improvement of one day sequentially and six days year on year.
- Diluted EPS: INR 60.52, up 8.7% year on year.
- Dividend: INR 12 per share for the quarter, with a record date of July 23 and payment on August 1.
Release Date: July 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- HCL Technologies Ltd (BOM:532281, Financial) reported a year-on-year revenue growth of 5.6% in constant currency, despite a sequential decline of 1.6%.
- The company's IT and business services grew 5.3% year-on-year, and engineering and R&D services grew 8.4% year-on-year.
- HCL Software business showed positive growth, with a 3.5% year-on-year increase and a 0.4% sequential increase in constant currency.
- The company reported a total contract value (TCV) of $1.96 billion for the quarter, indicating strong deal wins.
- HCL Technologies Ltd (BOM:532281) continues to see significant opportunities and growth in the AI and GenAI space, with multiple ongoing engagements and new product launches.
Negative Points
- Operating margins decreased to 17.1%, a decline of 50 basis points compared to the previous quarter.
- The services business experienced a sequential decline of 1.9%, and the engineering and R&D services saw a sequential decline of 3.5%.
- The life sciences and healthcare segment declined 4.1% year-on-year due to project completions and softness in the MedTech segment.
- The overall people count reduced by 3.6% sequentially, attributed to the State Street JV divestiture.
- The manufacturing vertical faced significant weakness, particularly in the automotive segment, contributing to a decline in engineering services.
Q & A Highlights
Q: How is the BFSI segment looking like, and do you expect the momentum to continue? Also, what led to the decline in the manufacturing vertical this quarter?
A: (Prateek Aggarwal, CFO) The BFSI segment is expected to show growth due to recent big wins, although the general discretionary spend remains similar to last quarter. The decline in manufacturing was due to offshoring of a large program, traditional year-on-year productivity, and significant weakness in the automotive segment, especially in Europe.
Q: What has led to the better-than-anticipated performance this quarter?
A: (C. Vijayakumar, CEO) The performance was slightly above expectations due to a combination of small factors. There wasn't any single trend or significant factor that drove the overperformance.
Q: Are you suggesting that the demand situation has bottomed out and is seeing a gradual improvement?
A: (C. Vijayakumar, CEO) Yes, except for financial services. The forecast for Q2 is based on the deals won and ongoing execution, leading to confidence in broad-based growth.
Q: Can you provide more color on what happened in the automotive sector and the impact of the ASAP acquisition?
A: (C. Vijayakumar, CEO) The ASAP acquisition did not deliver as expected in Q1, and there is stress in the automotive sector, especially in Europe. However, we are confident in the long-term outlook and believe the EV segment will undergo some stress due to various factors.
Q: How do you plan to manage margins in the 18% to 19% range despite the upcoming wage hikes?
A: (Prateek Aggarwal, CFO) The wage hike decision is still in progress. Historically, Q1 is soft, Q2 and Q4 are near the full-year number, and Q3 is the peak. We have various levers to manage margins and remain confident in achieving the 18% to 19% guidance.
Q: What are clients asking for in terms of benefits from GenAI during ADM or IMS deal renewals?
A: (C. Vijayakumar, CEO) Clients are pragmatic about GenAI for running production landscapes. Our AI Force platform addresses the end-to-end lifecycle of software development and application operations, and we are committed to implementing it across all customers.
Q: How do you see the impact of GenAI on ADM and Infra, and what are your observations on this space?
A: (C. Vijayakumar, CEO) GenAI can lead to 50% savings in BPO and testing, 10% to 30% productivity improvement in ADM, and 10% incremental benefit in infrastructure and application operations. The business innovation and data-led AI journeys will be a good growth driver.
Q: How many trainees are you planning to hire this year?
A: (C. Vijayakumar, CEO) The full-year plan is to hire 10,000 trainees. In Q1, we added about 1,100 trainees, and we will plan quarter on quarter based on demand.
Q: What will it take for clients to re-look at discretionary projects?
A: (C. Vijayakumar, CEO) Clients will become more open to new work based on economic pressures such as interest rates and inflation. Some companies are still conservative despite good profitability, and this conservatism will loosen with changes in macro factors.
Q: How is the technology and services vertical performing, and what is driving the growth?
A: (C. Vijayakumar, CEO) The tech and services vertical is seeing growth due to digital business programs and execution of programs won two to three quarters ago. There is also momentum with hyperscalers in enabling infrastructure creation and support.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
