HCLTech is seeing more large and long-term deals with a tenure of 4-6 years, as the IT services major is currently executing its highest ever deal pipeline, senior executives told Moneycontrol. These comments follow the announcement of the company's $2.1 billion deal with Verizon Business after reporting a weak Q1 performance last month.
HCLTech's partnership with telecom giant Verizon Business is a six-year agreement. The managed network services partnership between the two companies is expected to have a positive revenue impact starting from November 2023, the IT services firm said. A select group of Verizon Business Global Customer Operations staff will also transition to HCLTech to execute the collaboration.
The company continues to win large deals, though it will not be over $2 billion in size like the Verizon deal, said Prateek Aggarwal, chief financial officer at HCLTech.
In the April-June quarter (Q1FY24), the company reported a double-digit decline in both year-on-year and quarter-on-quarter growth of its Telecommunications, Media, Publishing and Entertainment vertical, a category under which this deal will now fall.
Speaking to Moneycontrol, Aggarwal said, “We will continue to work on a large pipeline even after this. This is the highest ever pipeline that we have ever had. And it has grown very strongly, especially in the last six months. We continue to have a lot of large deals. Maybe not all of this size, but what we call large deals. That's the development in the last say one year or so.”
He added that the nature of deals is changing from being discretionary in nature a year ago to more cost-optimisation, vendor consolidation, and efficiency-focused deals. These deals will tend to be longer term than discretionary ones. Discretionary and experimental technology deals have taken a hit for the overall IT sector as customers tighten their tech budgets amidst macroeconomic challenges and inflation.
“These deals we are seeing are typically 4-6 years long. Maybe some of them may go beyond six also,” Aggarwal said.
Milestone deal for HCLTech
Anil Ganjoo, chief growth officer, Americas, TMT and RCPG Industries at HCLTech said that the Verizon deal was the “single largest” services deal and a “major milestone” for the company.
“It's a game changing strategic business partnership,” Ganjoo told Moneycontrol.
“Verizon is best known for its networking services and solutioning at the scale at which it operates. And HCL is a recognised leader in the managed network services space. So we are coming together and HCL has been chosen to cover every network deployment, service delivery assurance, customer service experience and operations, project management, and also to truly modernise their service delivery mechanism,” he said.
Ganjoo said the company is leveraging a lot of data and AI-based network services, models, tools, and platforms to improve the customer experience. He added that the deal will not only lead to cost reduction, optimisation, and efficiency, but also revenue expansion, thanks to the joint go-to-market propositions that both companies will roll out.
Ganjoo also highlighted that this deal will be a key example of how HCLTech's AI tools are resulting in deal conversions and revenue generation. The mega deal involves utilising HCLTech's proprietary toolset, which includes AI-driven chatbots, automation of a lot of processes, monitoring, and assurance service delivery.
The company had last updated that it already has over 140 internal and external projects around generative AI at various stages of maturity -- from proof of concepts to implementation. It also plans to train 20,000 employees in generative AI capabilities over the next 18 months.
HCLTech’s Q1 performance
HCLTech reported subdued earnings in the April-June quarter, missing analyst estimates on all fronts, including revenue, EBIT margins, and profitability.
The company, however, continues to retain its FY24 guidance of 6-8 percent revenue growth in constant currency terms and 18-19 percent exit EBIT margins. Aggarwal said that the company had retained its guidance during Q1, even though it knew that the Verizon deal was likely to close soon.
Also Read: MC Interview | Will improve utilisation to boost margins: HCLTech CEO
Aggarwal maintained that the company's headcount will be higher in March 2024 than it was in March 2023, as these deals will require more employees. In Q1FY24, the company's total headcount was down by 2,506 employees.
The company’s quarterly order book in Q1 had dropped to $1.56 billion, following seven consecutive quarters of maintaining $2 billion-plus in deal wins. On a YoY basis, order book plunged nearly 24 percent from $2.05 billion in the same quarter last fiscal. In Q4FY23, the order book stood at $2.07 billion.
In an interview with Moneycontrol last month, HCLTech’s CEO and MD C Vijayakumar had said that the company is seeing an “all-time high” deal pipeline and the performance is expected to improve in the upcoming quarters.
(This copy was updated to reflect a response from HCLTech that came after Moneycontrol published the article.)
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
