HCL Tech is overcautious; will likely deliver positive surprises going ahead
HCL Technologies delivered robust Q3FY24 results, by far the best among the “Big Four" Indian information technology (IT) services companies. The company reported a 6.0% sequential revenue growth in constant currency (CC) terms, surpassing market expectations, to hit $3.4 billion. This growth was fuelled by a significant 34% quarter-on-quarter (QoQ) increase in HCL Software (Products & Platforms).
The services segment saw a 3.1% QoQ growth, with contributions from both IT and ER&D verticals. However, the total contract value of deal wins dropped to $1.9 billion from the Q2FY24 high of $4 billion, with the company securing 18 large deals - six in services and 12 in software. HCL has adjusted its FY24 dollar revenue growth forecast to 5.0-5.5% YoY in CC, narrowing from the previously estimated range of 5.0-6.0%.
The company's Ebit margin exceeded expectations at 19.8% (+130 basis points QoQ), with HCL Software achieving an impressive 32.9% margin. However, the services margin saw a 50 basis point contraction QoQ. HCL has retained its Ebit margin guidance of 18-19%, displaying more optimism than its peers who indicated challenges in Q4.
In terms of workforce, HCL was the only one among the Big Four to increase its net headcount, adding about 3,600 employees to exceed 224,000. All four companies reported a significant drop in attrition rates, marking the fourth consecutive quarter of this trend. The implied 4Q guidance suggests the services vertical will grow next quarter, despite lower deal wins and a high base.
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