HCLTECH: SOFTWARE SEGMENT DRIVES BEAT; LOWER END OF REVENUE GUIDANCE REVISED UPWARDS

News: HCLTech reported revenue of US$3,445 mn, up 2.4% QoQ & up 6.8% YoY (in CC terms up 1.6% QoQ & 6.2% YoY). The services business improved 1.6% sequentially and 5.9% YoY in CC terms, owing to the balanced increase in the discretionary and non-discretionary spends. Growth was led by the software segment which grew 1.4% QoQ and 9.4% YoY in CC terms. The IT services and ER&D business also saw a growth of 1.8% and 1.1% QoQ in CC terms respectively. Geography wise on YoY basis in CC terms the growth was led by Americas (65.1% of mix) & Europe (28.4% of mix) which grew by 7.5% & 4.2% respectively while ROW (6.5% of mix) declined by 2.6%. Segment wise on YoY basis in CC terms, growth was led by TMPE (12.1% of mix), Manufacturing (19.5% of mix) Retail & CPG (9.6% of mix) and Tech & Services (13.1% of mix) which grew by 61.2%, 7.1%, 6.2% & 5.6% respectively while Financial Services (20.5% of mix), Lifesciences & Healthcare (16% of the mix), Public Services (9.2% of mix) declined by 4.5%, 2.8% & 2% respectively.  Excluding state street divestment impact of 4% on revenue , BFSI also grew healthy. EBIT margin stood at 18.6%, up 150 bps QoQ. PAT at ₹ 4235 crore was up 10.5% YoY. The company’s headcount reduced marginally by 780 employees bringing the total employee headcount to 2,18,621. The attrition further declined by 130 bps YoY to 12.9%. HCLTech during the quarter won TCV of US$2.22 bn (up 13% QoQ & down 44% YoY). The management for FY25 revised its revenue growth and services growth guidance to 3.5-5% YoY in CC terms (vs 3-5% earlier) while the margins are expected to be within the previously guided margin band of 18-19%. The company declared an interim dividend of ₹12 per share.

Views: Software segment drove the beat. The company remains optimistic, backed by a strong services deal pipeline, growing traction for GenAI (aided by Zeenea acquisition), balanced discretionary and non-discretionary deal portfolio and incremental revenue from its HPE CTG acquisition (which will be incremental above the revenue guidance provided). The revised topline guidance implies a CQGR of 0-2% for Q3 and Q4, which appears easily achievable.

Impact: Positive