India's HCLTech Misses Q3 Revenue Estimate

HCL Technologies (HCLTech), India's third-largest software company, posted a smaller-than-expected December-quarter revenue on Monday, with clients holding back discretionary tech spending amid macroeconomic uncertainties. The company's consolidated revenue increased 5.1% to 298.9 billion rupees ($3.45 billion) in the third quarter, falling short of analysts' expectation of 300.68 billion rupees, as per LSEG data. India's $254-billion IT services industry is usually on a weak footing in the December quarter as most clients scale down tech operations due to the holiday season in the United States and Europe.



The company's Q3 FY25 revenue miss of 5.1% year-on-year (YoY) growth, falling short of analysts' expectations of 5.5% YoY growth, may impact the company's FY25 revenue growth guidance. The company had previously guided for a constant currency (CC) revenue growth of 3.5% to 5% for the full year. However, the Q3 miss may lead some analysts to revise their estimates and potentially lower their expectations for the full-year guidance. For instance, Prabhudas Lilladher sees the IT major to report 3.9% YoY rise in net profit at Rs 4,520 crore against Rs 4,350 crore in the same quarter last year, with revenue seen rising 6% YoY to Rs 30,200 crore from Rs 28,450 crore. This suggests a potential downward revision in the revenue growth guidance.

To boost its revenue in the coming quarters, HCLTech can consider the following strategic moves:

1. Leverage AI-led propositions and GenAI offerings: HCLTech has seen strong growth in its AI and GenAI offerings. To capitalize on this, the company can:
* Continue to invest in and expand its AI Force and AI Foundry platforms.
* Promote these offerings to existing and potential clients, highlighting their ability to drive efficiency, growth, and innovation.
* Win more deals in AI and GenAI, as seen in the quarter with a US-based biopharmaceutical company and a US-based financial services provider.
2. Strengthen the deal pipeline: HCLTech can focus on:
* Winning more large deals, similar to the 21 large deals won in the quarter, which had a TCV of $2.29 billion.
* Diversifying its deal pipeline across verticals, geographies, and offerings to ensure well-distributed growth.
* Focusing on high-growth areas like Data & AI, Digital Engineering, SAP migration, and efficiency-led programs.
3. Maintain a strong focus on hiring and retention: To support growth and maintain a skilled workforce, HCLTech can:
* Continue hiring freshers, as seen with the addition of 2,932 freshers in the quarter.
* Focus on reducing attrition rates, which have been moderating, as seen with the LTM attrition rate of 12.9%.
* Invest in employee satisfaction and development to retain talent and foster a positive work environment.
4. Expand its product portfolio: HCLTech can:
* Continue to grow its HCLSoftware segment, which has seen strong YoY growth of 9.4%.
* Explore new product offerings and partnerships to expand its revenue streams.
* Leverage its strong pipeline and deal wins to drive growth in its software business.
5. Maintain a balanced approach to revenue growth and profitability: HCLTech can:
* Focus on maintaining a healthy EBIT margin, which was at 18.6% in the quarter.
* Balance revenue growth with operational efficiency to ensure profitability.
* Maintain a strong focus on cash flow management, as seen with the FCF/NI ratio of 119% on a LTM basis.

In conclusion, HCLTech's Q3 FY25 revenue miss may impact its full-year guidance, but the company can take strategic steps to boost its revenue in the coming quarters. By leveraging AI-led propositions, strengthening its deal pipeline, maintaining a strong focus on hiring and retention, expanding its product portfolio, and maintaining a balanced approach to revenue growth and profitability, HCLTech can position itself for growth in the face of macroeconomic uncertainties.