Categories Concall Highlights, Earnings, Technology

HCL Technologies Limited Q2 FY24 Earnings Conference Call Insights

Key highlights from HCL Technologies Limited (HCLTECH) Q2 FY24 Earnings Concall

  • Financial Performance
    • HCL Technologies had strong revenue growth this quarter across all dimensions.
    • Revenue was $3.225 billion, up 1% sequentially and 3.4% in constant currency. This includes a 60 bps contribution from the ASAP acquisition.
    • EBIT margin improved 154 basis points sequentially to 18.5%, driven by productivity, utilization, and cost optimization.
    • Net income grew 6.4% year-over-year to $463.5 million. In rupee terms, it grew 9.8% to 14.4% of revenue.
    • Services revenue grew 1.6% QoQ in constant currency.
    • Engineering and R&D Services segment grew 5% and IT and Business Services grew 0.9% QoQ in constant currency.
  • Improved Margins
    • Operating margins improved by 154 bps sequentially through several initiatives.
    • Efficiency improved in managed services operations through automation and AIOps capabilities.
    • Freshers who were hired and trained over last 18 months got deployed economically.
    • Subcontracting costs were optimized.
    • As a result, EBIT percentage reached 18.5%.
  • Attrition
    • LTM attrition stood at 14.2%, down almost 10% on a YoY basis.
  • Record High Bookings
    • Q2 bookings hit a record high of $4 billion vs. $2 billion range in previous quarters.
    • HCL signed a major deal with Verizon to become the main provider for deploying Verizon’s managed services worldwide for enterprise customers.
    • The high value of bookings sets up HCL for healthy growth in 2H24.
  • Guidance
    • HCL revised full year revenue guidance down by 300 bps at upper end due to weak Q1 and Q2 performance being below expectations.
    • Q1 was weak and Q2 had some strain on discretionary spending, leading to lowering of full year guidance.
    • But Q3 and Q4 expected to be strong with services organic growth of 2.6-3.8% to achieve new guidance range.
    • Large deal ramping up in Q3 and Q4 will significantly contribute to growth.
    • Software margins expected to remain in similar range as last year for now.
    • Verizon cost deal ramp-up related to sales may affect margins, but upward bias is still expected.
  • Demand Environment
    • Discretionary spending by clients continues but is lower than normal levels.
    • Deal pipeline continues to remain very strong, though maybe 10% below peak levels.
    • HCL continues to see good deal flow and is in final stages on many large deals.
    • Direction of discretionary spending still uncertain, with volatility in market outlook every 2-3 months.
  • Cost Reduction Measures
    • Deliberate action has been taken on a number of fronts to reduce costs, including third-party subcontractors and travel.
    • Training costs have not been cut, but recruitment has been reduced due to hiring of freshers.
    • Cost of hardware and software has also reduced.
  • Timing And Impact Of Wage Hikes
    • Salary increases usually happen in July, but will now happen in October due to one quarter deferral.
    • Wage hikes will have an impact of around 60-65 basis points in October and a small impact of 25-30 basis points in March.
  • Outlook for 2H24
    • In 2H24, recovery is expected due to large deal going live in November, software seasonality, and continuing revenue.
    • Strong growth is expected in the rest of the year with a commitment to deliver 5-6% growth for the full financial year.

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