HCLTech, India's third-largest software exporter, has reported a 6.8% sequential growth in net profit, reaching Rs 4,257 crore for Q1 FY25. This result exceeds ET's analyst poll estimates of Rs 3,745 crore. The company's robust bottom-line growth is primarily attributed to a spike in non-core income amidst a quarter marked by sluggish demand.

 

Financial Performance Overview

Despite the increase in net profit, HCLTech's revenues and margins declined sequentially. The company's EBIT was recorded at Rs 4,795 crore, reflecting a 4.4% quarter-on-quarter decrease but a 7.5% year-on-year increase. HCLTech's consolidated revenue stood at Rs 28,057 crore, marking a 6.7% rise from the previous year but a 1.6% drop sequentially.

 

Stock Market Reaction

Following Tata Consultancy Services' (TCS) earnings report on Thursday, technology stocks surged to lifetime highs on Friday, significantly boosting broader stock indices. HCLTech was among the top five Nifty gainers, along with TCS, driving the technology sector's strong performance.

 

CEO Insights and Future Outlook

C Vijayakumar, CEO and MD of HCLTech, noted the challenges faced during the "seasonally weak quarter." He emphasized the cautious approach towards discretionary spending, indicating it may remain consistent with the previous fiscal year. Vijayakumar stated, "Although some actions show that things could have bottomed out, I do not want to take that call because there have been so many false starts in the last year to when the recovery will happen."

 

Margin and Revenue Guidance

The operating margin contracted to 17.1% from 17.6% in the previous quarter. HCLTech has maintained its revenue guidance of 3-5% for FY25 and its margin guidance at 18-19%, unchanged from FY24. Vijayakumar expects higher margins in Q3 to offset the slow growth observed early in the fiscal year.

 

Divestment and Non-Core Income

HCLTech's divestment of its UK subsidiary to State Street International Holdings contributed to a $70 million gain in other income. This divestment also led to a reduction in headcount by 8,080 employees in the June quarter.

 

Bookings and Client Engagement

During Q1, HCLTech secured bookings worth $1.96 billion, compared to $2.3 billion in the previous quarter. The company has conducted around 200 proof-of-concepts in Generative AI (GenAI), with several expanding into actual client projects.

 

CFO Statement and Dividend Announcement

Prateek Aggarwal, CFO of HCLTech, highlighted the company's strong cash flow generation, with free cash flow over the last twelve months at Rs 21,637 crore, representing 133% of PAT and 88% of EBITDA. The Board declared an interim dividend of Rs 12 per equity share for FY25.

 

Market Performance

On Friday, HCLTech shares closed 3.2% higher at Rs 1,560.40 apiece, following a 0.8% rise in the BSE Sensex. The results were announced post-market close.

 

Comparative Insights

On Thursday, TCS reported a 3.16% quarter-on-quarter drop and an 8.7% year-on-year increase in consolidated net profit at Rs 12,040 crore for Q1 FY25. The decrease was mainly due to wage hikes, while revenues increased 2.25% sequentially to Rs 62,613 crore, surpassing market expectations.

 

Sector Outlook

Vijayakumar addressed the financial services sector, noting continued opportunities for cost optimization and technology transformation. Despite a projected decline in Q2 due to the State Street divestment, growth is expected in this vertical moving forward.

 

Hiring Plans

As of the end of June, HCLTech's total headcount stood at 219,401, with plans to hire approximately 10,000 fresh graduates from colleges this year.