HCL Technologies Ltd. is confident to deliver operating profit margin guidance of 18–19% because of cost-efficiency efforts, visibility of strong performance from software business, and new deal wins, Chief Executive Officer and Managing Director C Vijayakumar said.
Last year, it delivered 18.2% EBIT margin. In the first half of the current financial year, HCLTech has met its own expectations. Third and fourth quarters are seasonally strong for software business, which will help with margins, Vijayakumar told NDTV Profit.
(Photographer: NDTV Profit)
(Photographer: NDTV Profit)
HCLTech has a program which is focused on extracting more efficiency using generative artificial intelligence and automation technologies. It also focuses on re–skilling employees so that utilisation can go up. It's the reason why efficiency rose despite moderation in the headcounts. "That's why we're confident of 18–19% guidance," he said.
HCLTech has plans to enhance sales presence in certain verticals, and increase number of clients, which will lead to new bookings. The pipeline of the company is near all–time high. "That should also help us get better bookings in the subsequent quarters," said Vijayakumar.
Book to bill comparison may not be accurate because HCLTech doesn't include renewals in the bookings. It records new businesses both from existing or new customers, he clarified.
HCLTech increased its revenue growth guidance to 3.5–5% from 3.5% earlier, following its second quarter result announcement. Its revenue, operating profit, and net profit met analysts' expectations.
From an overall perspective, it has been a strong quarter for HCLTech. The company delivered growth across the board. "That's the fantastic aspect of Q2 performance," Vijayakumar said.
HCLTech indicated at the beginning of the quarter that it would see growth in all the verticals except financial services. So, the company had some visibility entering into the quarter, but the way it happened was better than expected. Financial services, excluding the divestment impact, has also grown very well. "The real underlying theme is some of discretionary spending is coming back."
"Growth is equally balanced between discretionary spend and non–discretionary spends," Vijayakumar said. This is ramping up cost–efficiency led program, but HCLTech will be on wait and watch mode to see how sustainable this is, the top executive said.
In 2022, the company was very optimistic, but in third quarter, things took a different turn. HCLTech has seen a lot of volatility, in terms of discretionary spending, play out in different pockets over the last eight quarter. To that extent, the company recognise that there is difficult geo–politcal situation, macro–economic situation, which impact clients some way or the other.
There are certain clients who are going through challenges and they are probably cancelling the programmes and also embarking on significant cost optimisation drives, which are impacting some clients in western Europe, he said.
Some of the top automotive companies are talking to the company, saying there's stress, Vijayakumar said. "So, some of the existing projects will slowdown or completely stop."
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