HCLTech Surprises with Strong Revenue Growth, Sees Best Quarter in Three Years

HCL Technologies Ltd, India’s third-largest software exporter, reported impressive revenue and profit growth for the three months ending in September, exceeding expectations.

For this quarter, HCLTech’s revenue rose by 2.4% from the previous quarter and by 6.8% year-on-year, reaching $3.45 billion. A significant portion of this growth came from European clients, contributing about half of the company’s $81 million increase.

In the first half of the fiscal year, HCLTech added $384 million in revenue, marking a 5.98% increase from the same period last year. The company’s net profit also increased, reaching $506 million, a 2% rise from the previous quarter. Analysts had predicted revenue of $3.4 billion and a net profit of $484 million.

However, this growth came with job cuts. HCLTech laid off 780 employees for the second consecutive quarter, following a loss of 8,080 employees in the previous quarter. The company attributed these layoffs to a shift in workforce requirements for more specialized roles. As of September 30, HCLTech had 218,621 employees, while rivals like Tata Consultancy Services and Accenture have been hiring more.

Despite the strong performance, HCLTech’s management remains cautiously optimistic about future demand. CEO C. Vijayakumar noted good demand in financial services and other sectors but emphasized a careful, quarter-by-quarter approach to forecasting. The company raised its revenue growth guidance for FY25 to a range of 3.5%-5% from the previous 3%-5%, indicating some recovery in demand.

HCLTech’s profitability improved as well, with operating margins increasing by 150 basis points to 18.6%, the highest since September 2021. This increase was driven mainly by its software products business, which saw a 510 basis point rise in profitability due to client renewals and innovations.

Meanwhile, Tata Consultancy Services reported a 2.2% sequential revenue increase to $7.67 billion, but its net profit fell for the first time in five years. TCS CEO K. Krithivasan indicated a cautious demand environment but noted potential for investment as interest rates ease.

For HCLTech, the IT and business services segment remains its main revenue source, accounting for $2.57 billion of its total. The company earned a fifth of its revenue from financial services, but much of its growth came from the manufacturing sector, which contributed nearly a quarter of its revenue increase. In the quarter ending September 2024, HCLTech generated $672 million in business from manufacturers, a 3% increase from the previous quarter.