HCL Technologies Limited Q1 FY23 Earnings Conference Call Insights

Key highlights from HCL Technologies Limited (HCLTECH) Q1 FY23 Earnings Concall

Management Update:

• HCLTECH said it is planning to hire 10,000 plus freshers in 2Q23.

Q&A Highlights:

• Sandip Agarwal from Edelweiss asked about current fresher intake estimate of 30,000 vs. the 34,000 to 35,000 number earlier. C Vijayakumar CEO replied that HCLTECH’s YonY growth in headcount is close to 20% and revenue growth also is in a similar range. The company said it has not moderated any hiring based on any demand environments and is on track of hiring 30,000-35,000.

 

• Sandip Agarwal from Edelweiss also enquired about the IT services margin falling 180 bp QonQ. Prateek Aggarwal CFO said that the outsourced services is the largest contributor to the 130 bp odd drop. Some of the drop is driven by the entry into some of the new frontier and focused countries.  HCLTECH is looking to get back into the margin range that it provided.

 

• Yogesh Aggarwal of HSBC asked about the reason for some of HCLTECH’s larger verticals like Manufacturing, Financial Services, and Retail being down or flattish. C Vijayakumar CEO replied that there can always be some quarterly variations but there’s nothing to really point out as a trend.

 

• Gaurav Rateria of Morgan Stanley asked about the earlier margin guidance of 18% to 20%, which is now expected closer to the lower end of it. C Vijayakumar CEO said that at the time of planning for the year, there were some broad assumptions like price increases which has taken more time. Also, the attrition, hiring and backfilling cost also continued to remain high, which was expected to moderate.

 

• Gaurav Rateria of Morgan Stanley enquired if it can be assumed that 1Q would be the bottom for the margins in context of the wage hikes to be seen in coming quarters. C Vijayakumar CEO said that Q1 has been the lowest margin quarter for last 2-3 years. And it’s a similar trend that will be seen. From 2Q onwards an improving trend will be seen.

 

• Mukul Garg from Motilal Oswal asked about meeting the margin guidance and if it expects the pricing impact to compensate for the wage hike. C Vijayakumar CEO said HCLTECH expects to be in the lower end of the 18% to 20% band and feel confident of the trajectory.

 

• Mukul Garg from Motilal Oswal asked about utilization in the context of low employee addition, higher attrition and elevated fresher intake. Prateek Aggarwal CFO said Utilization continues to be a lever for HCLTECH to improve because it has hired 34,000 people, which includes a lot of laterals as well as a lot of freshers.

 

• Sandeep Shah of Equirus Securities enquired if the company is believing that there is a risk in achieving the lower end of the margin guidance or it’s achievable. Prateek Aggarwal CFO replied that HCLTECH believes it is achievable, that’s why it is staying with the guidance.

 

• Sandeep Shah of Equirus Securities asked about the reason for free cash flow in 1Q23 being weaker. Prateek Aggarwal CFO replied that it’s a momentary thing. Some client collections got delayed; most of it should come back next quarter itself.

 

• Ravi Menon with Macquarie  asked that looking at the medium-term view, if HCLTECH Is looking at gross margin expansion from current levels. C Vijayakumar CEO answered that 18-20% is what the company should get to for which there is some work to do. HCLTECH is confident that all the levers that it is working on will enable to improve the overall margins.