HCL Tech Q1 Results Highlights: Confident financial services will bounce back after Q2, says CEO

HCL works with several global chip companies, which has contributed to the firm's tech and services vertical, said CEO C Vijayakumar.

HCLTech Chief People Officer R Sundararajan: Mix of intake since FY22 has been skewed towards lateral hires, which will influence our wage hikes.

No pick up in discretionary spending, said HCL Tech CEO C Vijayakumar.  "We expect it to be similar to last year. Can't take a call on whether things have bottomed out."

HCL Tech CEO C Vijayakumar: Saw unexpected weakness in automotive segment which contributed to overall performance.

Will skill 20,000 employees with Gen AI, to complete 100,000 gen AI-trained workforce by year-end, chief people officer Ramachandran Sundararajan said.

"We want to add incrementally about 20,000 people upskilled and certified for Gen AI in each quarter to achieve 100,000 target," he said.

Attrition level of 12.8 percent is at the lower end, we expect it to continue at similar levels, said chief people officer Ramachandran Sundararajan.

Chief people officer Ramachandran Sundararajan said total headcount in the first quarter of FY25 is in line with what they planned for.

Fresher addition at 1,078 is in line with plan for Q1, Sundararajan said.

Our focus on profitability and capital efficiency has improved. That continues to grow, CFO Prateek Aggarwal said during a press briefing on July 12.

HCL Tech's headcount saw a decline: Here are the details

-Total people count at 219,401; net addition: -8,080.

-Reduction in headcount due to divestiture: -7,398

-Added 1,078 freshers

-LTM attrition at 12.8 percent, (down from 16.3 percent in Q1 of last year)

"We remain committed to improving our capital efficiency and are pleased to report Last Twelve Month (LTM) ROIC for the company is up 350 bps YoY at 34.6 percent and for Services business is up 476 bps YoY at 42.8 percent," said Prateek Aggarwal, chief financial officer, HCLTech.

"Our Q1 Revenue and EBIT performance was slightly better than our expectations. We clocked in $2 billion TCV of new business bookings. We are confident of decent growth in the coming quarters, positioning us well to deliver our revenue guidance for the year as clients continue to spend on GenAI and other emerging technologies," said C Vijayakumar

CEO & managing director, HCLTech.

Company expects FY25 annual revenue to grow between 3 percent and 5 percent. The IT firm also expects services revenue growth to be between 3 percent and 5 percent YoY in CC. EBIT margin to be between 18.0 percent and 19 percent, according to company statement.

In the reported quarter, the company posted a revenue of Rs 28,057 crore compared to Rs 26,296 crore in the year-ago period, the filing said.

IT firm's net profit jumped 20 percent to Rs 4,257 cr in Q1FY25; declares dividend of Rs 12, the company said in an exchange filing on July 12.

In the year-ago period, HCL Tech had reported a net profit of Rs 3,534 crore, the exchange filing said.

The management commentary on new deal ramp up and visibility going

ahead are key thing to watch out, said Axis Securities in a note.

Operating margins may contract by 39 bps due to higher onsite expenses. We expect normal deal wins in the quarter, Axis Securities said.

We expect revenue to grow by 0.6 percent QoQ, aided by the ramp-up in the

previous deals and stronger IT product & platform business, Axis Securities said in a note on July 12.

HCL Tech grands 7,384 restricted stock units (RSUs) to 4 eligible employees of the company and its subsidiaries under the RSU Plan 2021, the IT firm said in an exchange filing on July 12.

In addition, 15,20,235 RSUs were also granted to 1,402 eligible employees of the company and its subsidiaries under the RSU Plan 2024.

Shares of HCL Tech were trading over 3 percent higher ahead of earnings announcement. At 14:38 pm, the stock was trading at Rs 1,561.5, higher by 3.27 percent on BSE. On NSE, the shares were trading 3.48 percent higher at Rs 1,564.5.

We expect HCL Tech to report revenue de-growth of 1.6 percent QoQ in rupee terms and operating margin contraction of 55 bps. Key factors to watch out for are: a) deal TCV/deal pipeline, b) pricing scenario, and c) outlook on growth, operating margins, and P&P business, Axis Securities said in a note.

HCLTech rival Tata Consultancy Services (TCS), India's largest software services exporter, reported a rise in net profit for the first quarter of financial year 2024-2025 on July 11. TCS net profit rose 9 percent to Rs 12,040 crore from Rs 11,074 crore in the year-ago period.

Revenue from operations increased 5 percent to Rs 62,613 crore for the June quarter as against Rs 59,381 crore in the same quarter last fiscal.

The company’s margins took a hit due to the wage hike cycle during the quarter. The EBIT margin or the operating margin narrowed to 24.7 percent for Q1, a 130 basis points fall from 26 percent in the previous quarter; in line with the Moneycontrol estimate of 24.7 percent. EBIT is short for earnings before interest and taxes.

The Street celebrated TCS results, which surpassed analysts' predictions. Riding on the wave of this performance, Jefferies, Nomura, and Nuvama revised their rating and target prices upwards, signalling renewed confidence in the tech giant's prospects.

Analysts are keenly awaiting the management’s commentary on new deal ramp-ups and future visibility. Axis Securities emphasizes the importance of these insights, while InCred Equities looks forward to HCLTech’s outlook on its IT services, ER&D, products business, and capital allocation. Nomura listed cost takeout projects, the banking vertical, and client discretionary spending outlook as key focus areas.

The $2.1 billion mega-deal with Verizon, signed in August 2023, will also be under scrutiny. This deal involves providing primarily managed network services (MNS) for Verizon Business's global enterprise customers.

“We expect investors to focus on the reasons behind weak deal wins (excluding the Verizon contract) over the past four quarters and the implications for future revenues,” said Kotak Institutional Equities.

The EBIT margin is projected to be 17.2 percent for the June quarter, showing a decline of 40 basis points sequentially, according to an average of 10 brokerage firms. The anticipated revenue decline is expected to impact the EBIT margin, as highlighted by several analysts.

Axis Securities predicts margin contraction due to higher onsite expenses, while ICICI Securities expects the EBIT margin to remain flat sequentially due to staggered wage hikes and the normalisation of products and platforms margin.

“We foresee a 2 percent revenue drop, driven by the usual productivity gains in annuity deals and the additional impact of offshoring a large deal that ramped up from March 2023,” noted Kotak Institutional Equities in their research report.

Shares of HCL Tech on July 12 were trading nearly 3 percent higher at Rs 1,555 apiece on BSE ahead of its Q1FY25 results expected later today. The stock has gained about 5 percent in year-to-date basis.

According to an average of 10 estimates compiled by Moneycontrol, the company’s revenue is projected to fall 1 percent quarter-on-quarter to Rs 28,094 crore. The decline in revenue is seen adversely impacting the net profit and EBIT margin of the IT major.