HCL Technologies: Can HCLTech sustain its revenue momentum after a strong September quarter? – News Air Insight

ET Intelligence Group: Revenue growth of HCL Technologies (HCLTech) for the September quarter was better than expected while the profit growth was in line with expectations. The company resumed sequential revenue growth with a strong print of 2.4% amid demand pressure in constant currency (CC) after a gap of two quarters when it had reported a drop of 0.8% each. While the management of the country’s third largest IT exporter declined to comment on the strategy of the largest peer Tata Consultancy Services (TCS) to set up a data centre, it reiterated that its focus would remain on building intellectual property (IP) and providing services to companies setting of artificial intelligence (AI) factories.

Last Thursday, TCS disclosed a plan to incur capital expenditure on AI ecosystem, which may cost upto $6.5 billion over the next five-seven years. This was the first instance where an Indian IT vendor committed a direct investment to construct AI infrastructure.

HCLTech, on the other hand, has announced to continue with its strategy to provide relevant solutions to clients on the AI platform and to augment its presence in AI services, which currently contribute around 3% to its top line.

The trend in HCLTech’s client numbers in various revenue buckets reveals that it is leaning largely on smaller deals at a time when clients are taking time to undertake large, multiyear projects. It reported an addition of 10 clients in $10 million-$20 million category sequentially in the September quarter while the $50 million-$100 million buckets did not show any additions. In addition, though it did not report any mega deal, its total contract value (TCV) of new deals rose sharply by 41.8% sequentially to $2,569 million for the quarter, reflecting a strong momentum in smaller deals.

For the September quarter, the company’s revenue grew by 2.8% sequentially in reported terms to $3,644 million. It was better than the average estimated growth of 1.8% by analysts. In rupee terms, revenue at ₹31,942 grew at a faster rate of 5.2% helped by favourable currency movement. At ₹4,235 crore, net profit rose by 10.2%, which was on expected lines, a strong growth coming on a lower base in the previous quarter. The operating margin bounced back by 120 basis points sequentially to 17.5% after declining by 160 basis points in the prior quarter.

Despite people related restructuring, the company’s headcount increased by 3,489 sequentially to 2,26,640. The attrition rate softened to a six quarter low of 12.6% from the prior quarter’s 12.8%. It has undertaken salary increments in October, which is likely to affect the margin performance for the December quarter.Overall, like TCS, HCLTech has continued to show traction in new deal wins and client engagements. The growth in next few quarters will depend upon the extent of project ramp ups.