Automation, cost-efficiency will be the biggest themes for deal wins in FY24: HCLTech CEO

C Vijayakumar, CEO and MD. HCLTech

HCLTech, the country’s third-largest IT services company, reported its January-March quarter and full-year numbers for FY22-23 on April 20.

The fourth quarter is usually a slow one for the IT sector, but this time it was worsened by the global banking crisis, macro-economic headwinds, inflation, and layoffs across tech companies.

Though HCLTech's numbers were a mixed bag, the company managed to reduce its attrition rates by 220 basis points quarter-on-quarter (QoQ) to 19.5 percent. The company also decreased its overall full-year employee addition to 17,067 in FY22-23 compared to 39,900 in FY21-22. HCLTech expects to reduce its attrition rates further in FY23-24.

In terms of deal win trends, CEO and MD C Vijayakumar said that uncertainties in order booking or deal delays are all on the discretionary spend side and there is no impact on the regular tech spending required to run a business.

In a post-earnings interview with Moneycontrol, Vijayakumar discussed his expectations and demand outlook for FY23-24, why he remains bullish on cloud spending, and the hiring trends for the upcoming fiscal year.

Edited excerpts:

You have brought down your revenue guidance to 6-8 percent in constant currency (CC) terms in FY23-24 compared to 12-14 percent in FY22-23. Why? What should we expect in FY23-24?

Our guidance depends on four things. Our booking pipeline, our net adds, and more importantly, what we are hearing from our clients on where they want to spend, and what are the opportunities we can participate in. All this is factored into our guidance.

Could you elaborate a bit on what you're hearing from the clients, to get a sense of what the deal outlook looks like for the fiscal year? How are client conversations shaping up?

Our client conversations are largely around how they can become more efficient. That's the single-most important theme a lot of customers are talking about, and how can they use service providers like us and technologies to bring more automation and efficiency. Also, how can we help them accelerate cloud adoption?

A lot of customers have committed to a certain amount of cloud adoption, but they need help to make that happen. They're talking about how to leverage the cloud given our strong infrastructure and application modernisation pedigree. That’s the crux of the conversations.

Your peers like TCS, among other IT firms, have said that clients have overspent on the cloud in the last couple of years and have now started to slow down on cloud spending and migration. Is that a trend HCLTech is also observing?

Customers are looking at optimising cloud spend. That is something that will directly impact cloud service providers. But to optimise the spend on the cloud they need to work with service providers like us. Instead of migrating an application as it is to the cloud, can you re-architect it to be more efficient on the cloud? That‘s what we're all trying to address with our clients. Re-architecting and modernising are required to reduce the operating expenses on the cloud.

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Your total contract value (TCV) is down both QoQ and year-on-year (YoY). Is this driven by certain sectoral downtrends? By when do you expect this to recover?

See, $2 billion is a fairly stable number. We've been reporting between $2.1-2.3 billion every quarter. We came in a tad below $2.1 billion this quarter. But the pipeline, as I mentioned, is quite strong. It's almost at an all-time high. As the pipeline converts, you'll see things happen.

What’s the outlook for large and mega deals? The company added only two clients in the $100 million-plus bracket this fiscal? So what’s the nature of the deal wins going to be like this year?

As I mentioned, we have several large deals in the pipeline. So you will see some of that convert this year.

Ram (Chief People Officer at HCLTech) mentioned that attrition rates would go down further. Is there a range that you see attrition rates stabilising at? What's the overall hiring plan for the year?

We think attrition should stabilise at around 15 percent in the next couple of quarters. In terms of hiring, we've talked about adding 13,000-15,000 freshers in FY23-24. Lateral hiring will be driven by demand, skills, locations, and all of that.

How's the product and platform business shaping up for you? How much has been invested so far? What can we expect from this category in FY23-24, and will there be more investments in terms of acquiring certain capabilities?

The software business has done exceedingly well in the last two quarters. This year, the March quarter revenue was about 8 percent higher than that of last March. And even on a YoY basis, while the software business declined by 2 percent last FY, this year it’s grown 1.8 percent, excluding the divestitures.

We've called out a very important metric for our software business, the annual recurring revenue (ARR), which crossed $1 billion. It’s exactly $1.028 million. This is a 5.2 percent growth over the ARR in March 2022. This is really reflective of what we've been saying about moving customers from a perpetual license (one-time sale of software, e.g.) to a subscription (recurring) kind of revenue model. You can clearly see that every quarter our ARR has increased.

In software, all the big companies publish the ARR as that’s the metric to be used to evaluate a software business.