HCLTech delivered strong growth in Q3, expect momentum to continue in Q4: C Vijayakumar

C Vijayakumar, CEO & MD, and Shiv Walia, CFO, HCLTech, in conversation with ET Now post announcement of Q3 results. Vijayakumar says there has been a steady improvement in the spending environment over the last two quarters, and we expect this trend to continue. However, significant changes may be seen in the overall business environment soon. Aside from that, the demand situation looks positive. HCLTech had a strong performance in Q3. The software sector showed nearly 18% growth, while the services sector grew by 2.2%. The CEO anticipates this momentum will carry into Q4, although there may be some slowdown as large projects wrap up and some major deals impact results. Considering all these factors, we are adjusting our guidance to reflect a 1% increase at the lower end.


The revenue has jumped up and margins have improved a bit this quarter. Any key factors that you would want to talk about and more importantly, what is the expectation from Q4 because Q3 was softer than expected. Are you expecting some sort of softness in Q4 as well?
C Vijayakumar: Yes, we delivered a very good quarter. Q3 was strong. Of course, the software business has a seasonality which delivered almost 18% sequential growth and services business also delivered a strong growth of 2.2% and we expect the momentum to continue in Q4. But there would be some moderation with some of the large projects coming to an end and there will be impact of some of the large deals. Factoring all that, a 1% increase in the lower end of our guidance.

Given the good growth in services revenues, are there any plans to expand further? You mentioned in the press conference that software revenue was below your expectation. What is the reason that you fell back?
C Vijayakumar: No, no, service revenue definitely was in line or better than our expectations, only the software revenue was a little below our expectations and we have had five-six quarters of good year-on-year growth on software. So, one quarter, if it is below expectations, it is still in line with our full-year guidance for the software business.

The EBIT margin shift, that is something that I want to discuss because it has been constant at 18% to 19%. You did manage to do 19.5% in the quarter gone by. Are there further levers available for you to improve the margins from here on?
Shiv Walia: What did we see in this quarter? Despite the fact that we had a wage hike of 80 basis points impact as well as furloughs impact of around 40 bps and another 20 bps impact came in the integration linked costs of the acquisition we did in this quarter. But despite that services margin, the growth was only 22 basis point sequence quarter-on-quarter and that is on the back of the project Ascend, which we announced six months back.

It is working well and gave us 100 basis point improvement in this quarter. This momentum will continue and the plan is to through these cost efficiencies, maybe to invest in Gen-AI programmes as well as the market expansion. The coverage we want to increase in the savings, which we are going to achieve through this programme.

Your TCVs this quarter were about $2,095 million, slightly lower than the previous quarter. Are you seeing any changes in deal momentum or client decision cycles?
C Vijayakumar: Our pipeline is quite strong. It is near all-time high and is a well-diversified pipeline across the verticals and geographies and service line. We see the spending and the overall demand environment improving at this point in time.

But the LTM attrition has increased to 13.2%. It is something that we have seen across all industries, not really surprising given the entire industry turn. What are you doing in terms of improving the employee retention and optimising the talent pipeline?
C Vijayakumar: Our attrition is within our desired range. There can always be some variations from quarter to quarter, but definitely nothing to be concerned about at this point. And full year attrition would be in the similar lines is what we would expect.

The other thing I also wanted to understand is in terms of geographies. America continues to nominate your revenue contribution. Are there any other specific growth opportunities that you are targeting, maybe in Europe or other regions?
C Vijayakumar: We need to expand our business across all the geographies. Germany is a very important geography for us. France is also a focus geography. Similarly, across the world, we have identified focus and new frontier countries where we continue to invest and expand our presence and acquire clients and expand our business there.

What is the outlook on the overall demand environment for FY25 ending and FY26 across key verticals – be it BFSI, healthcare, or manufacturing. Anything you would want to call out on a sector specific view?
C Vijayakumar: From what we have seen last quarter and the quarter before, there is a gradual improvement in the spending environment. We believe that will continue into the coming quarters. However, there could be significant changes in the broader business environment and business landscape a few days from now. So, barring anything specifically correlated to that, the demand environment is good.