India’s third largest IT services firm HCLTech reported a 23.9 percent plunge year-on-year in deal order book for the first quarter of fiscal 2024 ended June 30, as the Indian IT sector hits the slow lane with clients cutting ramping down deals and reassessing discretionary spends amid macroeconomic challenges.
HCLTech’s quarterly order book dropped to $1.56 billion after seven consecutive quarters of maintaining $2 billion-plus in deal wins. Last year in the same quarter, the company reported $2.05 billion in deal wins and in Q4FY23, it stood at $2.07 billion.
Addressing the media during its earnings conference, HCLTech’s CEO C Vijayakumar said that although Q1 is typically a soft quarter for the company, the performance was below the management’s expectations.
“Q1 is typically a soft quarter for HCLTech as productivity benefits for a large number of contracts kick in during the quarter. Though we expected it to be a slow quarter, our performance was lower than our expectations,” Vijayakumar said.
“However, I am happy to report that our pipeline continues to grow. Last quarter we said our pipeline grew significantly, this time it has continued to grow. We are optimistic about pipeline conversion and its revenue translation and hence maintain our full-year guidance we have given,” he added.
Last quarter, HCLTech updated its full-year revenue growth guidance in constant currency (CC) terms to 6-8 percent YoY for FY24, compared 12-14 percent YoY CC growth in FY23.
According to Vijayakumar, IT & business services (IT-BS) vertical had a good deal momentum with a lot of new deals signed, which ramped up quite smartly. “But most of the gains were offset due to reduction in discretionary spend in a couple of verticals.”
“This has resulted in IT-BS segment continuing to see flat growth in constant currency terms. Our engineering and R&D services business remains soft-driven by tech and telecom verticals. ERS business reported a decline of 5.2 percent QoQ in CC. HCL Software showed resilience on a YoY basis, revenue remained stable,” he said.
“Three of our largest verticals delivered very strong double-digit YoY growth – financial services grew 14.4 percent YoY in CC, manufacturing grew 16.5 percent in a YoY basis, life sciences grew by over 13.4 percent YoY," Vijayakumar said.
These three verticals contribute more than 60 percent of HCLTech’s revenue.
Speaking of segment-wise performance, he said, “Growth in these verticals is a great execution of large deals which has translated into revenue. This has helped to offset some of the reduction in the discretionary spend. The decline in tech and telecom verticals is due to reduction in discretionary spends and deals ramp down.”
As of geographical growth, Europe grew 10.5 percent YoY in CC terms, Americas was up by 7.3 percent in CC and the rest of the world declined by 6 percent in CC.
Generative AI updates
Just like its peers, HCLTech too will be expanding into generative AI (Gen AI). The company at present has over 140 external and internal generative AI projects at various stages of maturity -- from proof of concepts to implementation.
“We have seen some good success in a couple of client-facing programmes in Gen AI on the healthcare side,” he said.
“Our approach has been driven by our engineering and innovation spirit. Given a tool like Gen AI, all our powers are geared towards harnessing the power to exponentially innovate all our services, solutions and the products,” Vijayakumar said.
HCLTech has built and launched three Gen AI labs in three locations across the world. These will act as the anchors and incubators of the solutions the company is developing around digital workplace services, digital engineering services, digital process operations and HCL Software products.
Sharing his thoughts on FY24’s expected performance, he said, “On an overall year perspective, given the strength of our pipeline and the momentum we have in few verticals and the momentum we expect to have in the rest of the verticals we continue to maintain our guidance of 6-8 percent growth in CC for the full year.”
Last quarter, in an interview with Moneycontrol, Vijayakumar said that he is seeing demand for FY24 coming from customers wanting to be more cost efficient, adopting cloud and bringing more automation to their operations.
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