HCLTECH - HCL Technologies Ltd Share Price

HCL Technologies management provided an outlook that reflects both optimism and caution regarding the future trajectory of the company's performance amid macroeconomic uncertainties. For FY26, management has guided a revenue growth of 2% to 5% in constant currency, with an EBIT margin target of 18% to 19%.

Key forward-looking points from management include:

1. Revenue Guidance: The company anticipates a full-year revenue growth between 2% to 5% in constant currency for FY26, alongside an EBIT margin of 18% to 19%.

2. Market Environment: Acknowledging subdued discretionary spending, management expects enterprises to pursue AI adoption to modernize legacy systems and improve efficiency, yet cautions that geopolitical factors and other economic conditions might invoke budget cuts and contract renegotiations.

3. Booking Performance: HCLTech achieved $3 billion in net new bookings for the quarter, contributing to a total of $9.3 billion for the fiscal year. This robust booking performance came despite the challenging market environment.

4. Strategic Client Engagement: Management emphasized their commitment to supporting clients amidst these uncertainties, suggesting that HCLTech is well-positioned to capitalize on emerging opportunities in AI and technology transformations.

5. Employee Metrics: The company has reduced its employee base by 1.8% while maintaining a low attrition rate of 13%, indicating prudent workforce management in line with its AI-led automation strategy.

6. AI-Driven Transformation: HCLTech is focusing on leveraging AI capabilities to enhance service delivery, which correlates with significant adoption of its AI solutions, contributing to sustained productivity gains and reduced operational costs.

Through these points, HCLTech demonstrates both a commitment to growth despite external challenges and an adaptive strategy to capitalize on the evolving technology landscape.

Here are the major questions asked during the Q&A session of HCL Technologies' earnings conference call on April 22, 2025, along with their detailed answers.

Question 1: Can you talk a bit about your performance in North America this quarter?

C. Vijayakumar: Thank you for your question, Ravi. We anticipated a decline due to a large program completion in Retail CPG, impacting our US performance. While we experienced a decrease, our overall quarter remained aligned with expectations, with no major surprises over the three months.

Question 2: Regarding your guidance, you mentioned a potential slight deterioration; can you elaborate?

C. Vijayakumar: Yes, the guidance reflects a belief that the environment may weaken slightly; however, we haven't seen cancellations. The lower end of our forecast indicates potential deterioration, while the midpoint assumes we can close several large deals in Q1. The upper end expects stability based on pipeline performance.

Question 3: What are your expectations for the ER&D segment?

C. Vijayakumar: We're optimistic about ER&D. We saw a 75% year-on-year booking increase, thanks to effective go-to-market strategies. Client relationships have strengthened around our engineering capabilities, contributing to a positive outlook for FY26.

Question 4: Despite economists predicting a recession, your outlook remains stable. Why is that?

C. Vijayakumar: We haven't felt significant impacts yet, but we anticipate a recession could influence demand. Our guidance incorporates potential downturns, driven by strong Q4 bookings and client needs. The current economic climate could indeed prompt expedited decision-making.

Question 5: How do you define discretionary spending in the current economic climate?

C. Vijayakumar: There's uncertainty in discretionary spending currently, as clients are taking a 'wait and see' approach. They lack clarity on potential impacts like tariffs, leading to a hesitant stance on tech expenditures.

Question 6: What factors are influencing the AI-driven cost optimization demand?

C. Vijayakumar: Modernization and transformation driven by AI are key. Clients seek to simplify operations for long-term cost savings rather than immediate cuts. We expect projects focusing on transformation to rise over isolated cost take-outs.

Question 7: Are higher wallets mainly coming from existing clients? If so, what does that mean for revenue?

C. Vijayakumar: Yes, we've seen incremental business from renewals, frequently exceeding deflation impacts. Clients are increasingly integrating AI solutions, raising their investment, which we anticipate will translate into revenue growth over time.

Question 8: Can you comment on the recurring revenue visibility from establishing GCCs?

C. Vijayakumar: We've successfully partnered to establish GCCs, maintaining strong profitability. These models are designed to ensure long-term value with structured agreements to mitigate risks associated with insourcing.

Question 9: How is the software business performing in comparison to services?

C. Vijayakumar: The software business has seen growth reaching 3.5%, on par with services. We've made progress on modernization and repositioning products in the market, which is improving our overall standing and visibility.

Question 10: Given economic uncertainties, how are you positioned to respond?

C. Vijayakumar: We are cautiously optimistic, focusing on the resilience of our portfolio that can weather economic fluctuations. Our approach remains flexible to capitalize on emerging opportunities while supporting our clients as a trusted partner.

These responses capture essential insights and forward guidance from the earnings call.