HCLTech stays cautious over macro uncertainties despite outgrowing H1 estimates

HCL

HCLTechnologies said it exceeded its internal expectations for the first half of FY25, however, the leadership remains cautious about macroeconomic uncertainties and hesitant to make long-term projections.

"We have done well in the first half, even better than what our internal assumptions were. We remain cautious because if you look at 2022, November and December is when we got some weakness signals," chief executive officer C Vijayakumar said at the company's Q2 earnings conference call on October 14.

For the full year of FY25, India’s third-largest IT services company increased its lower end of the revenue growth guidance by 50 basis points to 3.5-5 percent in constant currency (CC) terms. "The higher end will depend on various factors. We have almost half of the year to go, and it depends on the bookings and the sustained demand environment," Vijayakumar said.

What stood out for the Noida-headquartered firm is the pick-up in discretionary spending by clients. At a time when its rivals have been calling out that discretionary spending is yet to pick up, HCLTech says it was better than Q1.

HCLTech's larger rivals Accenture and Tata Consultancy Services have explicitly conveyed that discretionary still remains elusive, following their latest quarterly earnings.

“It was a good, balanced discretionary and non-discretionary growth. So, that gives us some confidence as we get into this quarter,” Vijayakumar said, adding that the company is cognizant of the tepid broader macroeconomic environment.

He explained the rationale behind raising the guidance, noting that to meet the lower end, the company would need to achieve flat growth in Q3 and Q4, while reaching the 5 percent target would require 2 percent growth in those quarters.

The positive momentum was also supported by deal executions in technology and services, as well as robust performance in the software business. HCLTech's net new deal wins for Q2 stood at $2.21 billion, up from $1.96 billion in Q1.

"So, in addition to the pickup in demand and services, software business, where a lot of things happened in the last month and even the last week of the quarter, definitely delivered a stupendous performance," Vijayakumar said.

The CEO also said that demand for services like data and artificial intelligence (AI) continues to grow. The company would prefer to take a cautious, quarter-by-quarter approach going forward, he said.

Also read: HCLTech sees headcount decline by 780 in Q2FY25

HCLTech’s largest vertical -financial services - declined following divestment in the State Street joint venture. On April 2, its wholly owned subsidiary HCL Investments UK sold off its entire 49 percent stake in State Street International Holdings.

"We did share in the last quarter that all the verticals will grow sequentially except financial services, which was going to decline because of the State's JV divestment," said the company. This particular vertical declined 4.5 percentage points to 20.5 percent in Q2.

The HCLTech management, however, emphasised that volatility remains a key consideration, and advised caution in making long-term predictions. "There is enough fundamental reason behind the growth, but I would wait for some more time before you extrapolate a more positive or long-term picture," Vijayakumar added.

Also read: HCLTech to roll out 7% salary hike in October, top performers to receive up to 15%