Recovery signs: HCLTech revenue up 4% in Dec qtr

BENGALURU: HCLTech reported a constant currency revenue growth of 4.1% in the December quarter, compared to the corresponding period last year. Sequentially, it grew by 3.8%. The firm narrowed its annual revenue guidance to 4.5% to 5%, increasing the lower end of the band from 3.5% to 4.5% signalling a recovery in certain segments. The guidance factored in revenue contribution from HCLTech’s recent Communications Technology Group (CTG) acquisition. HCL acquired CTG from HPE for $225 million last year.

The telecommunications and retail & CPG verticals drove growth, increasing by 33.1% and 17.2% respectively compared to the previous year, whilst financial services declined by 1.4%. HCLTech CEO C Vijayakumar said, "The average duration of signed deals is getting shorter, which means the tenure of the deals is coming down. The shift towards shorter tenure deals naturally leads to a moderated total contract value, but the more important metric in this context is annual contract value which is good on a year-on-year basis. Our annual contract value is up 9% quarter-on-quarter and 23% year on year." He said, "While we are confident of medium-term recovery, we have to bear in mind a fourth quarter outlook that accounts for a certain planned contractual reduction. On the positive side, small deals are getting converted quicker, while the large deals are taking a little more time to convert."

The company secured contracts worth $2.1 billion, comprising seven services deals and five software agreements. The Americas showed 6.2% yearly and 1.9% quarterly growth, whilst Europe demonstrated 2.6% yearly and 3.5% constant currency growth.

The services division exceeded expectations, although the software segment underperformed due to delayed contract renewal decisions.

Vijayakumar said the company saw a sizable number of deals influenced by AI and GenAI. “Some of our largest deals that we signed this quarter are enabled by AI-led transformation. Agentic AI is another big opportunity where we can enable our clients as they empower their employees and clients with more AI-led features,” he added. Since early 2023, he said the cost of using LLM models decreased by over 85%, enabling broader implementation across various scenarios.

Operating margins improved to 19.5% from 18.6% quarter-on-quarter, despite a slight year-over-year decrease. “We gained through Project Ascend (margin expansion programme) due to productivity improvement of around 100 basis points, and that was offset by approximately 80 basis points. The impact of wage hikes and the furloughs came in at approximately 40 basis points in this quarter, and another 15-basis point impact was on account of CTG acquisition integration-related costs as well as acquisition. There was also an 18-basis point benefit on account of forex movement in this quarter,” its CFO Shiv Walia said.

The company reduced its fresher recruitment target from 10,000 to 7,000 for the year. Its chief people officer Ramachandran Sundararajan said, "During the first half of this fiscal year, we hired about 4,000. During this quarter we added about 2,014. So that's what I refer to as 6,000 during the year to date this fiscal and we probably will add another thousand so that will all add up to about 7,000. Lower attrition and improved productivity have resulted in moderating the fresher numbers for the year."

When asked about how the return of Trump’s administration would impact immigration policies, he said, “About 80% of our people in the US are all local, so our dependence on H-1B is one of the lowest in the industry. We've been locally self-sufficient, and that reflects in the number of H-1Bs that go through every year. So, it's minimal dependence,” Sundararajan added. The firm typically applies for 500-1,000 H-1B visas annually.

HCL added 2,134 employees in the December quarter, taking the total headcount to 220,755. Attrition inched up to 13.2% from 12.9% in the previous quarter and 12.8% in the year-ago period.

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