HCL Technologies: A Strong Quarter with Broad-Based Growth and Positive Outlook

HCL Technologies Ltd (BOM:532281) reported a robust set of results for the third quarter of FY25, reflecting the company's strong performance across various business lines and geographies. The quarter was marked by broad-based growth, positive surprises on margins, and a strong commentary on demand revival. This article will delve into the key highlights of the earnings call and analyze the company's performance and outlook.



Strong Revenue Growth and Improved Margins

HCL Technologies delivered a strong quarter with revenue growing 3.8% QoQ and 4.1% YoY in constant currency. The company's EBIT margin stood at a robust 19.5%, up from 18.6% in the previous quarter. The improved margins were driven by an all-time high product margin, reflecting the company's ability to manage costs effectively and improve realizations.



Broad-Based Performance Across Business Lines and Geographies

The company's growth was powered by broad-based performance across business lines, verticals, and geographies. HCL Software delivered a stellar performance of 9.4% YoY, while HCLSoftware ARR grew 0.6% YoY in constant currency. The company's Services CC revenue witnessed an upside of 2.2% QoQ and 4.9% YoY, with Digital Revenue jumping 6.3% YoY CC, contributing 38.5% of services.

Positive Surprise on Margins and Strong Order Flows

HCL Technologies reported a positive surprise on margins, with EBIT coming in at 19.5% (up 93 bps QoQ). The company's new deal bookings were healthy during the quarter at $2.1 billion, with wins across services and software. The strong order flows and commendable client mining, coupled with a stellar show from top accounts, indicate a positive outlook for the company.

Positive Commentary on Demand Revival and Short-Cycle Projects

The company's management provided a positive commentary on demand revival, discretionary demand, and short-cycle projects. This optimism is reflected in the company's guidance for the full year, with revenue growth expected to be between 3.5% - 5.0% YoY in CC and EBIT margin guidance of 18.0% - 19.0%.



Investment Opportunity

Given the strong quarterly performance, positive surprises on margins, and a positive outlook, HCL Technologies presents an attractive investment opportunity. The current volatility in the market presents an opportunity to add the stock to ride the technology upcycle. The company's strong performance, broad-based growth, and positive commentary on demand revival make it a compelling choice for investors seeking exposure to the technology sector.

In conclusion, HCL Technologies' strong Q3 FY25 performance reflects the broader tech industry trends, with the company's broad-based growth and improved margins indicating a positive outlook for the sector. The company's strong order flows, positive surprises on margins, and positive commentary on demand revival make it an attractive investment opportunity for investors seeking exposure to the technology sector.