Release Date: October 14, 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 1.6% sequential revenue growth and a 6.2% year-on-year increase in constant currency, indicating strong business momentum.
- The company's operating margin improved to 18.6%, an increase of 149 basis points from the previous quarter, showcasing effective operational execution.
- HCLSoftware business demonstrated significant growth with a 9.4% increase this quarter and a 6.4% growth in H1 FY25, highlighting the relevance of its products in the digital economy.
- The company secured 20 new deals in Q2, with a total new booking TCV of $2.2 billion, reflecting a healthy mix of small and large deals.
- HCL Technologies Ltd (BOM:532281) continues to witness strong traction in AI and GenAI-related opportunities, with its AI Force platform being widely adopted for service transformation.
Negative Points
- The financial services vertical experienced a decline due to the planned divestment, impacting overall growth in this sector.
- Despite overall growth, the Rest of the World (ROW) region saw a year-on-year decline of 2.6% in constant currency.
- The automotive sector, particularly in Europe, is facing pressure, which could impact future growth in this segment.
- The company's guidance for the second half of FY25 indicates a cautious outlook, with expected growth between 3.5% to 5% year-on-year in constant currency.
- There is a noted volatility in the software business, making it challenging to predict consistent long-term growth despite recent strong performance.
Q & A Highlights
Q: The ask rate for the second half in terms of growth seems benign. Does the top end of the guidance assume aggressive furloughs, or is there conservatism baked into the numbers? Also, could you elaborate on the ER&D growth areas and the impact of recent job cuts at a major airline?
A: The ask rate for Q3 and Q4 is between 0% and 2%. While we see optimism from improving demand across multiple verticals, we're cautious due to the broader macroeconomic environment and geopolitical context. Regarding ER&D, growth is returning, but we remain cautious about aerospace and automotive sectors due to specific client issues, which are factored into our guidance.
Q: Could you discuss the AI productivity embedded in recent deals, particularly in BPO, and its impact on win rates?
A: We have implemented significant automation in a major BPO deal, achieving two-thirds of the required productivity. While there is an expectation of GenAI productivity, it requires customer commitment to implement our AI Force platform. The models with clients are transparent and realistic, and we are comfortable with our approach.
Q: How should we view the growth trajectory for the software products business, given the recent strong performance?
A: Historically, the software business had low single-digit growth. We aim for mid-single-digit growth in the medium term. Recent quarters have been strong due to broad-based initiatives, particularly in data and AI. However, due to volatility, we maintain our current growth outlook.
Q: Can you provide insights into the manufacturing vertical, especially given recent warnings from major auto companies?
A: The automotive sector is under pressure, with some clients undergoing cost reductions and program cancellations. However, strong SAP business growth in manufacturing is offsetting some of these headwinds. We remain largely comfortable across the portfolio, despite specific challenges in automotive and aerospace.
Q: What are the assumptions for achieving the upper end of the guidance for the services business?
A: We assume similar furloughs to last year and expect execution of signed deals. The pipeline is strong, and we anticipate good bookings for the rest of the year. However, achieving the upper end of guidance depends on several factors, including deal ramp-ups and pipeline conversion.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
