‘We’re speaking about half percentage point revenue impact, which is very small’: HCLTech CFO

The Noida-headquartered company expects “decent” deal bookings in the December-ended quarter while operating margin is also expected to improve on both quarterly and year-on-year basis helped by its products and platforms business, he added.

The third-largest software firm HCLTech on late Thursday said it may clock its annual revenue growth at the lower end of its guided range. The investors reacted to the comments as the stock ended 6.5% lower on Friday’s close.

HCLTech is seeing more-than-anticipated furloughs or leaves from the clients’ end due to the December holiday season in the West resulting in a change in its demand commentary.
“One week (break) has been a little higher than what any of us expected from clients’ side..so that is basically the trigger of it…it does tell you that there are certain customers that who are beginning to sort of face some pressure on their P&L and starting to take some action and therefore it does give you some cause for being cautious for the next quarter,” said Prateek Aggarwal, chief financial officer, HCLTech.

At 16-17% annual revenue growth guidance for its IT services business, he said it is still the “best” among tier I Indian IT majors. “We are talking about a half percent kind of a number. Anybody will take 16.5% as the midpoint. It is really small to be very honest,” he added.

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On the macro front, he said major economies have not yet slipped into recession which is good news for the Indian IT sector.

“The recession might hit in the second half of the calendar year 2023 and it is “still a little way off to my mind, Aggarwal said.

The Noida-headquartered company expects “decent” deal bookings in the December-ended quarter while operating margin is also expected to improve on both quarterly and year-on-year basis.

“Secondly, both CVK and I said during our presentations that the margins recovered pretty sharply. This quarter, helped by the P&P (products and platforms) seasonality revenues which come in the December quarter, our margins will be much higher,” Aggarwal added. The company clocked 18% EBIT margin for the September-ended quarter but aspires the metric to be in the 19-20% range in the medium term.

The products and platforms consist of licensed software products and typically aid the December quarter for companies as they are up for renewal in terms of yearly subscriptions.

It is to be noted that HCLTech purchased certain products such as AppScan, BigFix and Unica from IBM for $1.8 billion in 2018. It contributed around 12% to HCLTech’s overall revenue for the financial year-ended March 2022.