HCLTech Q3 results: Profit rises 18.8%, FY23 revenue guidance trimmed

India’s third-largest IT services firm HCLTech reported a strong quarter with a net profit of Rs 4,096 crore for Q3, FY23, an increase of 18.8 per cent compared to the same period last year, against a weak global macroeconomic environment. However, the company brought down its higher end of revenue guidance for the 2023 fiscal year.

HCLTech revised its revenue guidance to 13.5 per cent to 14 per cent, down from the earlier 13.5 per cent to 14.5 per cent due to seasonal weakness expected in the Q4FY23.

The net consolidated revenue of the company grew 19.6 per cent to Rs 26,700 crore, compared to Rs 22,331 crore a year ago. The IT and business services segment, the largest contributor to the IT major’s revenue, grew 15.3 per cent YoY.

HCLTech’s Q3 FY23 results beat Bloomberg’s estimate on revenue and net profit. Bloomberg had estimated a revenue of Rs 26,088 crore and a net profit of Rs 3,814 crore. “The booking growth was led by IT operating model transformation, cloud adoption and large vendor consolidation deals. We are confident to deliver industry-leading growth over the medium term supercharged by our positioning, our strong propositions and our passionate people,” said C Vijayakumar, the chief executive officer (CEO) and managing director, HCLTech.

The company has bagged 11 large deals in the quarter, eight in services and three in the products segment. The revenue from the US and Europe grew nearly 20 per cent, despite the troubled macroeconomic environment. “Europe led the growth with a very strong 7.2 per cent growth in constant currency. The numbers for this quarter are dependent on the last two quarters. We had some good deal wins, which are now being executed. The decision cycles in Europe are getting delayed, which may lead to some moderation (in European revenue) in the coming quarters,” Vijaykumar said.

On a sequential basis, the net profit saw a 17.46 per cent rise from Rs 3,487 crore in the previous quarter. The revenue jumped 8.2 per cent against Rs 24,686 crore in Q2, FY23.

The company’s earnings before interest and taxes (EBIT) margin improved by 60 bps compared to the same period last year. The margins for the quarter stood at 19.6 per cent. Sequentially, the margins improved by 165 basis points. EBIT margin guidance for the year is narrowed by 50 bps to 18-18.50 per cent.

Prateek Aggarwal, chief financial officer, HCLTech said, “We have significantly improved EBIT margins sequentially, led by operating leverage and efficiencies, despite the impact of salary increments for the largest section of our people. Our H1 growth and deal wins led us to increase our revenue guidance to 16-17 per cent for services and 13.5-14.5 per cent at the company level, reflective of our strong growth visibility. Our EBIT guidance is in a narrower range of 18-19 per cent. Our cash flow generation continues to be robust with OCF at $2,049 million, being 114 per cent of net income.”

The company has reported a net addition of 2,945 employees in the quarter. The headcount stands at 222,270. The attrition rate at the IT services business reduced by two per cent to 21.7 per cent last twelve months (LTM). Ramachandran Sundararajan, the chief people officer, said, the company will have no change in its variable pay plans for the year, and added that the firm was close to completing its target of hiring 30,000 freshers in FY23.

Company is Mattel’s primary digital transformation partner

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Strong showing

• Company announces dividend of Rs 10 per share
• Diluted EPS (LTM) at 53.36, up 13.1% YoY
• The company won 11 large deals in the quarter
• Revenue from the US and Europe grows nearly 20%
• IT services business attrition drops 2% to 21.7% LTM