Release Date: October 12, 2023
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- HCL Technologies Ltd (BOM:532281, Financial) recorded its highest bookings ever at $4 billion, setting a strong foundation for future growth.
- Revenue grew 1% quarter-on-quarter and 3.4% year-on-year in constant currency, indicating steady growth.
- Operating margins improved by 154 basis points over the last quarter, reaching 18.5%, driven by efficiency initiatives and cost optimizations.
- The company added significant new clients, including 3 accounts in the $100 million category and 7 accounts in the $50 million category.
- HCL Technologies Ltd (BOM:532281) expects strong growth in Q3 and Q4, supported by large deal ramp-ups and seasonal software business spikes.
Negative Points
- Discretionary spending remains lower than usual, impacting overall revenue growth.
- The technology vertical continues to be weak, with hopes for recovery in the coming quarters.
- Despite strong bookings, the overall environment remains volatile, making long-term planning challenging.
- The company had to revise its full-year growth guidance downwards due to a weak Q1 and lower-than-expected Q2 performance.
- There are concerns about the impact of wage hikes on margins, with an expected hit of 60 to 65 basis points in the upcoming quarters.
Q & A Highlights
Q: What is the overall status on the discretionary spend in the existing deals? Are we seeing continuous run down as some of our peers are suggesting?
A: Discretionary spend continues to be there, but it is lower than what we would normally see. This reflects in some reprioritization or optimization. Our pipeline remains strong, though slightly below peak levels. We have a number of deals in final stages and expect strong bookings for the rest of the year. (ChinnaSwamy VijayaKumar, CEO)
Q: Given the strong order backlog and mega deals ramping up, is it fair to assume FY '25 could be a high growth year if the macro stays stable?
A: The overall environment is volatile, making it difficult to take a view on FY '25. We will have a strong exit from FY '24, but the discretionary spend and client budgets will play a crucial role in FY '25. (ChinnaSwamy VijayaKumar, CEO)
Q: Did things worsen on flow business towards the end of the quarter, leading to the guidance cut?
A: There was no specific event at the end of the quarter that led to the guidance change. Q1 was weak, and while Q2 met market expectations, it was below our own. The ask rate for Q3 and Q4 became high, leading to a realistic estimate for the second half. (ChinnaSwamy VijayaKumar, CEO)
Q: On the software side, despite year-on-year growth, margins are down slightly. Is this due to sales investments or other factors?
A: Sequentially, Q2 is the weakest quarter for Software. Year-on-year, the slight weakness is due to ongoing initiatives aimed at sustaining growth. We expect margins to be in a similar range as last year. (Prateek Aggarwal, CFO)
Q: What gives you confidence that H2 will be better compared to H1?
A: Three components: large deal ramp-up starting November 1st, seasonal spike in software revenue in Q3, and continuing revenue from new bookings and ongoing business. These factors contribute to our forecast for strong growth in Q3 and Q4. (ChinnaSwamy VijayaKumar, CEO)
Q: What is the timing for wage hikes and their impact on margins?
A: Salary increases, usually in July, will now happen in October. The impact on margins will be around 60 to 65 basis points, with a small impact in the March quarter as well. (Ramachandran Sundararajan, Chief People Officer; Prateek Aggarwal, CFO)
Q: What is the implied Products and Platforms growth guidance for this year?
A: We are not giving specific guidance for Products and Platforms. However, the growth and margins are expected to be similar to last year. (Prateek Aggarwal, CFO)
Q: There seems to be a sharp reduction in costs like travel and training. Is this intentional?
A: Yes, there has been deliberate action on several fronts, including reducing third-party subcontractors and travel costs. Training costs have not been cut; rather, recruitment costs have reduced due to fewer new hires. (Prateek Aggarwal, CFO; ChinnaSwamy VijayaKumar, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
