HCL Tech reports subdued Q1 show with 7.6% net profit rise

HCL Technologies Ltd, India’s third largest software services exporter, reported on Wednesday a 7.6% rise from a year earlier in fiscal first-quarter net profit at ₹3,534 crore.

The company posted rupee revenues of ₹26,296 crore during the June quarter, which marked a 12.1% rise from a year earlier but fell 1.2% sequentially. Revenues grew 6.3% from a year earlier in constant currency (CC) terms.

The earnings lagged expectations of the company as well as of the Street.

Commenting on the results, chief executive C. Vijayakumar said while Q1 is typically a soft quarter for the company with productivity benefits for a large number of contracts kicking in during the quarter, the performance has been “lower than our own expectations”.

During the quarter, HCL issued 6-8% revenue growth guidance for FY24 and operating margins of 18-19%. The company has retained both the CC revenue growth and operating margins.

Further, HCL won 18 large deals at a total contract value of $1.57 billion in the quarter.

“We experienced a double-digit y-o-y (year-on-year) growth, in our largest verticals – financial services, manufacturing, and life sciences and healthcare fuelled by large deals. These large deals helped offset cuts in client discretionary spend in these verticals. We are expecting other verticals to pick up shortly,” said Vijayakumar.

In terms of headcount, the IT major’s total workforce stood at 223,438 as on 30 June, down by 2,506, though it added 1,597 freshers. The company also reported an attrition rate of 16.3% on a last twelve month (LTM) basis, a decline of 7.5 percentage points. HCL also deferred the annual pay reviews of employees by a quarter.

“HCL Technologies reported a subdued performance, missing Street estimates due to the weak demand environment which the IT sector as a whole is facing due to recession fear across the globe,” said Dhruv Mudaraddi, research analyst at Stoxbox. He said large deals wins by HCL are a positive takeaway.

HCL reiterated its focus on artificial intelligence (AI), more particularly on generative AI.

The company is reported to have more than 70 projects at various stages from proof of concept to implementation. The projects cover domains such as education, applications, system and product engineering, infrastructure and operations, and HCLSoftware products.

The company is also training more than 20,000 employees on generative AI capabilities. HCL has launched generative AI labs in three locations globally.

Additionally, a company spokesperson said it is focusing on other emerging technologies including 5G, quantum computing, and low-code platforms.

Chairperson Roshni Nadar Malhotra said the company is well-placed to leverage opportunities in emerging technology areas ‘despite challenging global macro environment’.