HCL Technologies Ltd Q4 FY22 Earnings Conference Call Insights

Key highlights from HCL Technologies Ltd (HCLTECH) Q4 FY22 Earnings Concall

Management Update:

• HCLTECH said, its services business over the last three quarters, have been consistently growing organically more than 5%, delivering one of the highest in the industry. The company crossed $10 billion in Services revenue alone over FY22.

• HCLTECH made record hiring in FY22 with 39,900 new additions. Attrition also remained lower than the industry at 21.9% on an LTM basis.

• For FY23, HCLTECH is guiding for 12-14% revenue growth in constant currency, while operating margins is expected in the range of 18% to 30%.

Q&A Highlights:

• Kumar Rakesh from BNP Paribas asked about the product and platform segment needing proactive investments. C Vijayakumar CEO replied that whatever investments that HCL plans to make are already part of margin guidance. And as HCLTECH has a large portfolio of products, it has the flexibility to dial down the investment on some and dial-up the investment on others.

• Kumar Rakesh from BNP Paribas enquired about the software product business revenue split. C Vijayakumar CEO replied that less than 30% comes from Product Licenses, 67% or two-thirds comes from Subscription and Support services and 3-5% from Professional services.

• Ankur Rudra of J.P. Morgan clarified if the payout this year a one-off and if the investors view any change in the sustainable payout ratios going forward. C Vijayakumar CEO answered that it’s in line with HCL’s guidance of a minimum of 75% of net income. And as a strategy, there is not too much of a capex plan or any acquisition plan of any reasonable size. So HCL wanted to make sure it pays out as much as it can.

• Gaurav Rateria from Morgan Stanley asked that in Europe macro is more volatile than last year, while large deal flow wins were announced in Europe. C Vijayakumar CEO answered that on the deal flow, it seems like it’s in proportion to the overall business. 60% is from North America, 28% odd from Europe. So, HCL is in a good situation from a secular growth.

• Gaurav Rateria from Morgan Stanley also asked that in terms of 18% to 20% band, what would be the impact of salary hike. Prateek Aggarwal CFO replied that HCL has factored in normal kind of increments for now but kept some space. And also while these efforts are well underway, it will probably take a few quarters to fully come back to HCL.

• Prashant Kothari from Pictet enquired about margins being slightly varying over the years and how HCL feels about its ability to make margins. C Vijayakumar CEO replied that over the last five years margins have been stable except the COVID induced savings in the last couple of years. HCL expects to see the margins increase incrementally from here based on all the interventions including rate hikes and talent strategy.

• Prashant Kothari from Pictet asked if HCL’s competitiveness and efficiencies has largely remained the same relative to the peers that it competes against. C Vijayakumar CEO answered that HCL’s competitiveness has improved because of very strong application and data modernization skill sets and some of the solution accelerators, which are a part of that.

• Mihir Manohar of Carnelian Asset enquired about the weak optimism in terms of demand environment. C Vijayakumar CEO replied that from HCL’s vantage point, compared to the commentary in December to now, HCL feel more optimistic, because its pipeline is higher than what it was in December. It’s the second highest HCL has ever had.