Key highlights from HCL Technologies Ltd (HCLTECH) Q3 FY22 Earnings Concall
Management Update:
- HCLTECH saw good success in its Products and Platform business, in terms of both renewals and new licenses in the quarter. Overall, growth was broad-based, with momentum across all geographies, segments and industry sectors.
- In terms of headcount, last quarter HCLTECH said it added 10,143 people and is in line to achieve 20,000 campus hires for FY22. The company has already added 15,000 people YTD. HCLTECH’s attrition percent stood at 19% on an LTM basis.
Q&A Highlights:
- Mukul Garg of Motilal Oswal asked about the unusual margin dip in the IT services vertical and what levers the company has to return to the 19% type margins for this vertical. CFO Prateek Aggarwal, said that the dip was unusual last year due to the very different supply situation in the market due to the pandemic. And on the levers, Prateek added that the company would like to get to the 19% kind of margins but said that it would take time. However, automation and other productivity measures are the biggest levers to reach that goal.
- Ankur Rudra from JP Morgan asks if there is any change in the company’s medium to long-term strategy to deal with the demand environment and the market being dominated by smaller deals. CEO Vijayakumar answered that HCLTECH’s pipeline has a good mix of small and large deals, though the inclination towards smaller deals is a little higher. Therefore, HCLTECH’s engineering and R&D services had a large number of small deals, which contributed to the growth.
- Sandeep Shah of Equirus Securities enquires about ESOP costs and if it would influence the lower margins guided for fourth quarter. CFO Prateek Aggarwal answered saying that ESOP is something that’s part of the LTI plan and the company is converting about 30% of that cash element into RSUs. Prateek added that ESOPs are not incremental costs and it’s not something that would make a bid difference to margins.
- Mihir Manohar from Carnelian Asset Management asks if cloud adoption could create strong opportunity for managed services. Vijayakumar said the company feels that cloud adoption is a tailwind for the infrastructure business. The company is building hyperscaler-specific migration and managed services factories to scale it, and HCLTECH sees that as a great tailwind for its business.
- Mihir also asked about the clawback of employee bonus of some of the retiring employees and if there is any margin effect because of that. CEO Vijayakumar commented that the effect is very insignificant.
- On a question asked by Surendra Goyal of Citigroup about P&P full year guidance which implies a significantly bigger than the usual fees decline in the March quarter, CEO Vijayakumar answered that a lot of things happened in the last week of the quarter, which resulted in the company guiding it at 0-1%. HCLTEH added that it would like to stick to this guidance.
- Abhishek Shindadkar from Elara Capital enquired about the purchase cost of property and equipment intangible of 63 million in cash. CFO Prateek said that it’s the normal run rate the company has in the region of 60 million to 65 million and most of it is IT equipment (laptops, servers, etc.). The company also clarified that it does not include intellectual property purchase or acquisition or anything like that.