Discretionary spending remains same as Q2, don’t see an uptick: HCLTech CEO

HCLTech CEO and MD C Vijayakumar

Opportunities and challenges coexist in the current demand environment, according to C Vijayakumar, CEO and MD of HCLTech. His comments come after the IT services giant managed to outperform peers by beating all market estimates in its performance for the third quarter ended December 31.

Vijayakumar added that he “still doesn’t see an uptick in the discretionary spend, it remains pretty much similar to what it was in the last quarter.” However, there is a portion of tech spending that remains resilient. This, he said included cloud migration, SAP core and data modernisation, cybersecurity, automation and advanced analytics.

Speaking of the current environment he said, “The rest of the financial year continues to be an environment where opportunities and challenges coexist. Clients have a few strategic priorities, like modernizing data, modernizing SAP, cloud engineering, Fin Ops etc.”

HCLTech’s order book of net new deal wins for Q3 stood at $1.92 billion, down from last quarter’s $3.96 billion. In the same quarter last fiscal, HCLTech’s TCV stood at $2.34 billion.

Overall, on a year-to-date basis, net new bookings stood at $7.5 billion, which is a 10% growth over the same period last year.

In Q3 the company signed 18 large deals including six for services and 12 for software business.

“Our pipeline continues to remain healthy and distributed across large and medium-sized deals. On an LTM basis, we had three $100 million clients and four $50 million clients on a year on your basis,” he said.

In terms of vertical-wise performance, the telecom and media business delivered a growth of 25.9 percent sequentially in constant currency driven by the execution and ramp of the Verizon mega-deal from the previous quarter.

This was followed by manufacturing at 7.6% quarter-on-quarter growth in constant currency, with ASAP contributing to a healthy portion of growth. Financial services business declined 1.3% quarter on quarter, primarily due to higher furloughs in the last quarter. Though it has grown 12.9% year on year in constant currency, which is a very strong performance, Vijayakumar said. Retail CPG grew 2.9% on a QoQ basis and also delivered 11.7% growth on a year-on-year basis in constant currency.

Geographically, America came in at 3.1% QoQ growth which was all organic, and 6.7% year-on-year in constant currency. The rest of the world business declined 5.3% QoQ in constant currency, due to higher furloughs, and some ramp-downs in certain projects.

Generative AI updates

“While we see great potential in generative AI in the near term, the programs in this segment will be small. We signed 31 deals in Gen AI but most of them were sub-million-dollar kind of ticket sizes. We are expecting them to ramp up in the coming quarters,” Vijayakumar said.

HCLTech had earlier said that the company had 140 internal and external projects around generative AI at various stages of maturity -- from proof of concepts to implementation. It had also planned to train 20,000 employees in generative AI capabilities.

HCLTech reported its Q3 earnings on January 12. The company saw a 6.23 percent year-on-year (YoY) growth in net profit at Rs 4,351 crore.

Consolidated revenue for the quarter grew 6.54 percent YoY at Rs 28,446 crore as compared to Rs 26,700 crore in Q3FY23. The company reduced its full-year growth guidance to 5-5.5% in CC terms.

Ebit margins or operating margins were up by 126 bps QoQ to 19.8%. The company managed to beat estimates on all the counts.