Akash Jha
As the Indian IT sector enters the slow lane due to clients cutting ramping down deals and reassessing discretionary spends in the face of macroeconomic challenges, HCLTech, India’s third largest IT services firm, reported a 23.9 percent plunge year-on-year in deal order book for the first quarter of fiscal 2024 ended June 30.
After seven consecutive quarters of achieving or above $2 billion in contract wins, HCLTech’s quarterly order book dipped to $1.56 billion. The company’s deal wins increased from $2.05 billion in the same period a year ago to $2.07 billion in Q4FY23.
HCLTech CEO C Vijayakumar told the media that the company’s performance in the first quarter was below management’s expectations, despite the fact that Q1 is traditionally a slow quarter for HCLTech.
Since many contracts’ productivity benefits don’t start accruing until the following quarter, HCLTech has historically experienced a slow first quarter. Vijayakumar admitted, “Though we anticipated a slow quarter, our performance was lower than our expectations.”
But I’m delighted to say that our pipeline is expanding. Our pipeline has continued to expand since last quarter, when we reported that it had grown dramatically. We remain confident in our ability to convert our pipeline into revenue, and as a result, we are keeping our full-year guidance unchanged.
HCLTech revised its full-year revenue growth target in constant currency (CC) terms from 12-14% YoY for FY23 to 6-8% YoY for FY24 last quarter.
Vijayakumar claims that the IT and business services (IT-BS) vertical experienced strong transaction momentum due to the signing of many new deals. “But most of the gains were cancelled out by the decline in discretionary spending across a few industries.”
As a result, the IT-business services sector has seen no increase at all, adjusted for inflation. The technology and telecommunications industries continue to provide a cushion for our R&D and engineering services industry. The CC of the ERS company fell by 5.2% from the previous quarter. “From a year-over-year perspective, HCL Software has proven to be resilient, with consistent revenue,” he said.
Financial services increased by 14.4 percent year-over-year in CC, manufacturing increased by 16.5 percent year-over-year, and life sciences increased by more than 13.5 percent year-over-year, as stated by Vijayakumar.
More than 60% of HCLTech’s income comes from these three markets.
For example, he commented on the segment-by-segment results, saying, “Growth in these verticals is a great execution of large deals which has translated into revenue.” As a result, this has compensated for some of the decline in discretionary spending. Reducing discretionary spending and a slowdown in transactions are to blame for the slump in the tech and telecom industries.
Europe saw a year-over-year increase in CC of 10.5%, the Americas saw an increase of 7.3%, and the rest of the world saw a decrease of 6%.
Generative AI updates
HCLTech plans to enter the generative AI (Gen AI) market alongside its competitors. There are currently approximately 140 generative AI projects, both internal and external, at various phases of development within the organization, ranging from proof of concept to execution.
On the healthcare side of things, “we have seen some good success in a couple of client-facing programmes in Gen AI,” he noted.
The spirit of engineering and creativity has guided our approach. When we have a tool like Gen AI, everything we do is focused on maximizing that tool’s potential so that we can exponentially improve our services, solutions, and products, as Vijayakumar put it.
HCLTech has established and opened up three global Gen AI laboratories. These will serve as the bedrock upon which the company’s solutions for the digital workplace, digital engineering, digital process operations, and HCL Software will be built.
He elaborated on the company’s expectations for FY24, saying, “On an overall year perspective, given the strength of our pipeline and the momentum we have in few verticals and the momentum we expect to have in the rest of the verticals we continue to maintain our guidance of 6-8 percent growth in CC for the full year.”
In an interview with Moneycontrol from the previous quarter, Vijayakumar predicted that customers seeking to reduce expenses by moving to the cloud and automating more of their business processes will drive demand in FY24.
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