India’s third largest IT services company HCLTech, formerly HCL Technologies, reported new deal wins worth a total contract value (TCV) of $2.35 billion in the third quarter of FY23 ended December 31, increasing by over 9.81 percent YoY from $2.14 billion as compared to the same quarter last year.
Sequentially, it was down by 1.26 percent from $2.38 billion last quarter. The annual contract value (ACV) is up 1.9% YoY.
The company won 17 large deals, of which seven were in Services and 10 in Software verticals. The company also won a major deal of over $500 million for a US-headquartered Fortune 500 financial services company. HCLTech added three new clients in the $50-million revenue bracket and two in the $20-million category.
C Vijayakumar, CEO & MD, HCLTech shared that the software business grew 30.5 percent QoQ in constant currency (CC). The vertical also won 26 new SaaS deals. SaaS opportunity is something the company is actively pursuing.
“There’s a huge uptick in seasonal gains from software business. Overall, we are seeing good demand environment especially in deals related to IT operating model changes, we are significant traction there. Cloud adoption, and vendor consolidation are some of the tailwinds expected to drive demand,” he said.
“Vendor consolidation, cost optimisation and integrated opportunities will drive the growth in the near- to mid-term,” Vijayakumar added.
Vijaykumar noted there will be about $150 million worth of vendor consolidation deals up for grabs over the next three years, and the company is well positioned to benefit from that.
Europe led the growth with 7.2 percent growth QoQ in CC, followed by Americas with 0.5 percent in QoQ CC. Life Sciences and healthcare, manufacturing, telecom and media were the strongest verticals.
“This was a quarter of milestones for us. For the very first time ever we have crossed Rs 5,000 crore in EBIT in one quarter and Rs 4,000 crore in PAT,” said Prateek Aggarwal, Chief Financial Officer, HCLTech.
Despite narrowing down FY23 guidance for revenue growth and EBIT margins or operating margins, the company saw an improvement of 165 bps in its QoQ operating margins touching 19.6 percent.
Impacted sectors
HCLTech’s largest business vertical financial services witnessed decline in QoQ growth in CC at (1.7 percent). Revenue mix and growth for Retail and CPG vertical for both YoY and QoQ in CC too came in negative at (3.8 percent) and (0.6 percent), respectively.
Vijayakumar maintained that the decline in these two sectors were driven by higher than expected furloughs, but the company remains positive on both the verticals for the upcoming quarters, having done some major deals in the last and current quarters.
During the company’s recent investor day in New York on December 8, Vijayakumar had indicated that the revenue is likely to come in the lower ends of its revenue guidance band of 13.5-14.5 percent in CC (constant currency) terms due to furloughs being greater than expected and challenges in the BFSI and Hi-tech segment. The company signaled a slowdown in discretionary spending in the tech, telecom and other verticals.
Leading IT analyst Moshe Katri of Wedbush Securities said in his recent report, “In this context, we believe HCLTech’s commentary/guidance revision (late last week) is a function of its exposure to a volatile products/software business as well as to weakening High Tech and Telecom verticals.”
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