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HCL Tech Q3 net profit dips 13.6 pc to Rs 3,442 cr, sees strong demand momentum continuing

In the third quarter, HCL Technologies recorded a revenue growth of 7.6 per cent sequentially on a constant currency basis, highest in the last 12 years.

IT firm HCL Technologies on Friday reported a 13.6 per cent fall in net profit to Rs 3,442 crore for the December 2021 quarter and said it expects to see a strong deal pipeline on the back of a robust demand environment. The company had logged a net profit of Rs 3,982 crore in the October-December 2020 quarter (as per US GAAP). Its revenue grew 15.7 per cent to Rs 22,331 crore in December 2021 quarter from Rs 19,302 crore in the year-ago period. The company explained that the profit after tax (PAT) in the third quarter of FY21 was higher by USD 59.4 million (Rs 438 crore) due to the reversal of a prior year’s tax provision due to a change in the method of calculating a tax deduction, basis evaluation of judicial rulings. HCL Technologies Chief Financial Officer Prateek Aggarwal said that excluding this, PAT was lower by 2.9 per cent in December 2021 quarter year-on-year in rupee terms.

“It’s basically three things – one is the seasonality, the leaves taken by people during this quarter because of the festive season. Second is the increments we gave out this quarter…third is the cost of attrition and backfilling people at a higher cost, targeted retention costs, higher recruitment costs and others,” he told reporters. On a sequential basis, HCL Technologies’ net profit was 5.4 per cent higher, while topline (revenue) grew 8.1 per cent from the September 2021 quarter. HCL Technologies has maintained its revenue guidance of double-digit growth in constant currency for FY22. It has also declared a dividend of Rs 10 per share for the third quarter. Talking about the company’s performance, HCL Technologies CEO and MD C Vijayakumar said the third quarter had been “spectacular” with strong revenue growth, sustained margin performance and continued momentum in booking and pipeline, reflecting the company’s all-round strength in the market. “We have delivered all-round stellar performance this quarter with a revenue growth of 7.6 per cent in constant currency quarter-on-quarter, the highest recorded in the last 46 quarters…we had a strong net new booking of USD 2.1 billion, a 64 per cent y-o-y increase,” he said.

The company’s products and platforms segment led the growth with 24.5 per cent, followed by engineering and R&D services with 8.3 per cent, and IT & business services with 4.7 per cent, all in q-o-q constant currency, he added. “We also continue to see a strong pipeline, which is reflective of the robust demand environment we are witnessing all around. “Looking ahead, we remain very optimistic about the demand environment and our diversified, client relevant propositions and our talent supply capabilities in the long term, makes us very optimistic about our future,” Vijayakumar said.

In the third quarter, the company recorded revenue growth at 7.6 per cent sequentially in constant currency — highest in the past 12 years. The Total contract value (TCV) of new deal wins was at USD 2,135 million in the third quarter, up 64 per cent year-on-year. Commenting about the company’s performance, Gartner Senior Director Analyst D D Mishra said HCL Technologies has deep vertical capabilities and co-creates solutions for industry clients. “While traditionally, HCL has focused on large enterprises for several services, the SMB (small and medium business) has an emerging focus. “It has grown its revenue for the past few years and has recorded above-average performance. It needs to reduce its dependence on legacy revenue and accelerate its digital revenue growth,” he added.

HCL Technologies’ scrip closed at Rs 1,337.55 apiece, marginally higher compared to the previous close on the BSE. The quarterly performance was announced after market hours. Ashis Dash, research analyst at Sharekhan by BNP Paribas, said the strong new deal wins, healthy deal pipeline, robust net hiring, and investments in digital capabilities will help HCL Tech to accelerate its revenue growth in FY2023. At the end of the December 2021 quarter, HCL had 1,97,777 employees with a net addition of 10,143 people, while attrition for IT services (on a last 12-month basis) stood at 19.8 per cent. Attrition excludes involuntary attrition and digital process operations. Indian IT services companies have been dealing with high attrition rates as demand for digital talent has outstripped supply, leading to what industry experts call a “war for talent”. In the December 2021 quarter, TCS has seen its attrition rate rising to 15.3 per cent in IT services from 11.9 per cent in the previous quarter. Infosys has seen voluntary attrition (last 12 months – IT services) going to 25.5 per cent as against 20.1 per cent in the September quarter.

HCL Technologies CEO Vijayakumar also highlighted that the industry is facing a significant demand-supply gap. “At HCL, while we continue to onboard experienced domain and tech specialists, our strategy will continue to lean more towards adding net new talent at scale through fresh talent… We are on target to achieve 20,000-plus campus hires during this fiscal, having added already more than 15,000 till date,” he said. Vijayakumar added that the company also expects to recruit more than 2,000 graduates over the next 2-3 years in the US, and continues to also scale its presence in countries like Vietnam, Sri Lanka, Costa Rica and Romania. HCL Technologies Chief Human Resources Officer Apparao V V said the company has already added 17,500 freshers as of January 10, and expects fresher hiring to be between 20,000 and 22,000 this year. “Our talent strategy has got a big component which is freshers and we definitely are looking ambitiously at onboarding double this number next year in FY23,” he added.

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