While its FY25 forecast continues to remain hazy, Noida-headquartered IT services major HCLTech is bullish on delivering strong growth in the next two quarters of fiscal year 2024. The company has already reported its highest-ever quarterly deal win total contract value (TCV) of $3.96 billion in Q2 (ended September 30). However, it has also slashed its full-year revenue growth guidance to 5-6 percent.
HCLTech’s attrition rate significantly reduced to 14.2 percent on a year-on-year basis in Q2 from 23.8 percent in the same quarter last year though its headcount declined for the second consecutive quarter by 2,299 people.
In an interview with Moneycontrol, HCLTech CEO and MD C Vijayakumar discussed revising the company’s revenue guidance for FY24 despite a strong quarter, the slowdown in hiring, deal win targets, generative AI projects and more.
Edited Excerpts:
Both HCLTech and Infosys reported a strong quarter. In your case, your numbers came ahead of estimates. Both of you still decided to slash your revenue forecast. What is driving the pessimism? Or is it because it’s taking a long time for these projects to come on stream?
It's primarily due to the first half performance. Q1 was a weak quarter for us and Q2 was okay. So, if you really add up the numbers, the first half has been weak. To deliver much higher growth in the second half or to keep revenue growth guidance at 6-8 percent, it means we really needed to do some 5 percent plus growth sequentially, to get to 6 percent. Given our momentum, the big deals that we won—we had the highest booking in the last quarter. All of that will convert to good growth for Q3 and Q4. But eventually, it was only translating to 5-6 percent growth for the full year, because we lost out in the first half.
The $3.96 billion deal pipeline majorly includes the $2.1 billion Verizon deal. Any range guidance for the TCV we can expect in upcoming quarters?
The booking that we reported includes all the deals that we signed in the last quarter, including Verizon. Generally, our run rate has been $2-2.5 billion in deal wins. And that would be the likely range in the future as well. But just keep in mind, this is net new deals. This is not rate cards, or framework agreements and things like that. This is where committed revenue is there from the clients. Once we get rate card deals, we count them only after we execute them. Because sometimes deals may not immediately really deliver any revenue. So, this is a very good metric, which is also quite strongly correlated to revenue growth.
Analysts say that even 4-5% seems aggressive at the upper end of the band. Again, what would you say to that?
No, I think we’ve given a band. It all depends on how everything pans out. We feel pretty good about it.
Your EBIT margin is significantly ahead of estimates. So, what helped you and what are the other factors that will continue to help you, because I think wage hikes are going to happen and you've also indicated that you will hit campuses for hiring. So, how will those factors impact your margin?
Right now the main reason the margin has improved is because we have improved utilisation. We had a lot of freshers who were under training, and were really leveraged this quarter and got deployed. We also reduced a significant number of subcontractors and decided to cover the work directly. So, these are the two things on the people side; and travel was a big number in the AMJ (April-May-June) quarter. We obviously put some controls on travel. There is a tendency to travel a lot, but the reality is that the world did business without any travel two years ago. There needs to be a middle ground and people cannot travel like there’s no tomorrow. So, we’ve put certain rules and regulations and control mechanisms for travel … that has also helped (cut) travel costs.
You had said that you’re not looking to backfill attrition. Will this mean another two quarters of negative headcount addition? And also what’s the outlook on lateral hiring?
Over the next two quarters, we will start hiring because even the offers that we’ve made in the September quarter, a lot of those people will join us in October and November. So, our headcount will go up from where we are in the October November quarter, and it will further go up in the January-February-March quarter.
Why are we seeing this trend of headcount coming down across the industry? Because if you’re winning large deals, TCV is healthy… Shouldn't you be creating a bench for projects that are coming on stream?
All of us have a lot of capacity. What you're seeing now is what we did two years ago, where we built significant capacity when the demand was high. And obviously, it took time to make the hired people more productive to deliver. Now, that is really coming in handy. And we are able to deliver with the capacity that we've created.
Everybody is talking about generative AI PoCs during their commentary. And you also mentioned that there are some PoCs going on. Can you shed some light on the kinds of use cases, maybe share some details on the number of PoCs involved and teams in place?
Last quarter, I said we had 70 projects, which were underway as proof of concept (PoC) for implementation. As of now we have more than 100 projects, which are underway across clients across various industry segments.
…one solution, for a European bank, is helping them to more effectively manage their compliance framework and compliance departments. So, this has been a good solution there. There’s another big use case where in a healthcare setup, the initial patient interaction, documentation of symptoms and initial observations a physician does can be done very effectively using a Gen AI bot. So, that is something we've demonstrated. And it can be really a useful thing to increase productivity for physicians, which is definitely one big need in the industry.
Internally, too, there are lots of ideas in terms of creating a new solution for a client. We … have some solutions where it can now be done much faster through some kind of sanitised content, where the language models can help us create the first draft. But … all of them will have a human in the loop so risks are taken care of.
Is there a correlation between revenue or profit per employee? Since all of you have spoken about productivity? Is that going up? And will that mean a further slowdown in hiring if your AI usage in projects has gone up?
I don't think so. Because you need more talented people as part of our ecosystem. So, I don't think the people demand will go down. But of course, what is expected of the people will change quite significantly. So, we need to change our training, focus… maybe even onboarding training for a lot of graduates has to be reimagined a little.
Have you put in any rule mandating five days a week in office, or is it flexible?
Our mandate right now is three days a week, and we will largely stick with that.
Do you have any employees in Israel?
Yes, we have 130 people in Israel. At this point, all of them are safe. Most of them working there are largely locals.
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