Yet, India’s third largest software company has maintained its revenue growth guidance of 6-8% and 18-19% operation margin for the fiscal year. The company is confident about converting its existing deals pipeline into strong revenue growth over the next few quarters and sees an increasing number of cost optimisation opportunities balancing out the lack of discretionary projects in the market, Vijayakumar told ET’s Romita Majumdar, Sai Ishwarbharath and Surabhi Agarwal in an interview. Edited excerpts:
How do you read the macro environment and demand? Do clients still fear a recession?
Some segments of the market are growing well. Three of our largest verticals – financial services, manufacturing and life sciences – which contribute to 60% of our services, have grown in mid-teens on YoY CC (year on year at constant currencies) perspective, which is strong. However, tech and telecom is where we saw steep decline and that is where the maximum pressure is. We expect that to moderate and recover. Some verticals have been positive while others will take a bit of time. I think the fear of recession is not gone. Everybody is preparing for potential downsides.
How many deal ramp-downs or cancellations are you witnessing?
This is mainly in tech and telecom sectors only. It shows up in the numbers as well. It is not broad-based.
Is HCLTech confident about achieving the guidance numbers given there are delayed deal conversions?
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In the next couple of quarters, we should see some of the conversations translate into revenues. In the March quarter, we reported a $2-billion large deal TCV (total contract value). This quarter we had $1.5 billion bookings. Some of this will translate to revenue in the subsequent quarters. The pipeline is quite strong. This will also convert to booking and revenue in due course. These are our fundamental assumptions, and so we are sticking to our guidance.Does the difficult macroeconomic situation make it a good time to buy assets as you announced the acquisition of German company ASAP?
We have been more focused on organic growth. Only where we feel that we cannot feasibly build organic capability, we look at acquisitions. This (ASAP) is not something we bought at a stressed valuation. The company is doing very well and works in a niche area. It is a significant opportunity for us. It will reflect in our revenue in the October-December quarter.
What are the margin levers you will be using to maintain your guidance?
The biggest lever is utilisation. We have to recover some of the drop in utilisation. Other levers have minor impact.
Do you expect FY24 to continue to be heavier on cost optimisation deals over transformation deals? Where are the higher margin deals coming from?
In some verticals, we are already seeing more balanced opportunities. The efficiency led opportunities are more than offsetting the absence of discretionary spends. But in other verticals, you will see that happening in the next couple of quarters. We have our internal guidelines on what opportunities we should chase for higher margins and we follow those.
How is the ASAP acquisition going to aid HCLTech’s growth plans?
This is an automotive engineering services company based out of Germany. If you see, there is a significant ER&D spend happening from Germany. A lot of the spend is in modern technologies like connected mobility, autonomous driving, etc. This area has a lot of software requirements beyond electrical, electronic, or mechanical expertise. And we were not really playing in that area. We had been looking for a good asset for over two years. It will help us get access to some of these specific clients and their buyers.
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