Top year for HCL ends with weak signals for next Deregister Go First aircraft: Delhi HC
Strong revenue growth was accompanied by muted profit growth and margins
Strong revenue growth in FY24, low-key profit growth, muted margins, and lowered expectations for FY25 revenue growth presented mixed tidings from Noida-headquartered HCL Technologies’ annual earnings announced on Friday.
India’s third-largest IT services company ended FY24 with 5.4% year-on-year (y-o-y) growth in revenue, higher than its peers in the top four, and in line with analyst expectations. However, the company projected a weaker ongoing financial year (FY25), with a guidance of 3-5% constant currency revenue growth and 18-19% operating margins.
C. Vijayakumar, the company’s managing director and chief executive, said that the overall macroeconomic environment may impact
MEarnings of India's top IT services companies in FY24 4.1 1.9 5.4 -3.8 7.7 6.2 3.2 -2.7 the company’s growth potential in FY25. “The macro situation will be similar to what we saw in FY24. Our revenue growth guidance fac-2.2 -7.6 0.7 -9.5
Operating margin 26 18.2 20.1 16.1 tors this. We have outperformed our peers in services delivery in both FY23 and FY24, and we’re confident of delivering good performance in any economic scenario,” he said.
At the same time, HCL Technologies saw a drop in margins in the March quarter due to a drop in high-margin deals and a seasonal decline in business from its software vertical, and also reported a flat full-year (FY24) operating margin of 18.2% compared to FY23. In the March quarter, its margin dropped by a significant 2.2 percentage points sequentially to 17.6%, which wiped out any potential for growth in FY24.
Prateek Aggarwal, chief financial officer of HCL Technologies, attributed the weakness in margin to seasonality.
“Our software businesses peaked in the December quarter, which boosted our margin to nearly 20%. Going forward, our margin guidance remains 18-19% for FY25,” Aggarwal said.
Quashing any hopes of a revival for Go First, the Delhi High Court on Friday ordered the aviation regulator to deregister all 54 aircraft leased by the bankrupt airline, effectively grounding the 20-year-old low-cost carrier.
The ruling bears implications not only for aircraft lessors catering to Indian airlines, but also for SpiceJet Ltd’s Ajay Singh and EaseMyTrip, who had jointly bid for Go First, previously known as Go Air.
Justice Tara Vitasta Ganju of the Delhi High Court has directed the Directorate General of Civil Aviation (DGCA) to process the lessors’ deregistration applications within five working days. The court has also directed the DGCA and the Airports Authority of India to assist the lessors in accessing airports for flying back their aircraft.
“The Delhi High Court’s judgment has significant implications for the overall airline insolvency scene in India,” said Mukesh Chand, senior counsel, Economic Laws Practice. “By upholding the rights of aircraft lessors and clarifying the deregistration process, the court’s decision sets a precedent for future cases involving similar disputes in aviation.”
Mark Martin, chief executive of aviation consultancy
Bengaluru: SBI Cards and Payment Services reported a surprise 11% rise in fourth-quarter profit on Friday as higher retail spending more than made up for a rise in bad loans. The company’s profit after tax rose to ₹662 crore for the January-March period from ₹596 crore a year earlier. Analysts were expecting a profit of ₹561 crore, as per LSEG data.
Growth in operating margin is a key indicator of a service provider winning large deals with strong profitability. A decline in this metric typically indicates a weak overall market, where there are fewer discretionary deals from clients across verticals.
HCL’s consolidated revenue for the full year was $13.27 billion, up from $12.59 billion in FY23. Consolidated net profit for FY24 rose 3.2% y-o-y to $1.9 billion. Both the figures were in line with Bloomberg’s estimates.
With this, HCL outperformed its peers in revenue growth—TCS revenue grew at 4.1% and Infosys, 1.9%. Wipro reported a 3.8% revenue decline for FY24.
That said, HCL’s 3.2% growth in net profit lagged behind TCS and Infosys in FY24, with the latter two reporting 7.7% and 6.2% profit growth, respectively.
Vijayakumar said that while the company added three $100 million-plus clients through FY24, there is no issue with execution of deals—a factor that many of HCL’s peers have flagged through the year due to cautious client approaches.
“This increase in large clients contributes to a full-year services revenue growth for us, and we’ve recognized revenue from these large clients through the past 12 months. These deals include hybrid cloud transformation and digital transformation,” he said.
Analysts were largely pleased with HCL’s overall performance. “The company has a reasonably strong overall deals pipeline, and given its overall execution and performance through the weak FY24, the immediate future looks promising enough in FY25,” said Biswajit Maity, principal analyst at Gartner. “However, seasonality will remain a concern, and customers are delaying deal signings and executions due to cost-saving exercises globally. These issues will need to be factored in.”
On a quarterly basis, net profit fell 8% sequentially to $480 million in the March quarter, while revenue remained mostly flat with a 0.4% sequential rise to $3.43 billion. HCL’s profit for the March quarter fell below Bloomberg analysts’ estimate of $494 million.
For the June quarter, Vijayakumar expressed caution on a potential hit to the company’s earnings, citing the company’s switch to a “global delivery model”, which refers to offshoring of a range of businesses to third-party vendors around the world. Such a model improves costs but may impact revenue growth.
Meanwhile, HCL was the only firm among the top four in Indian IT services to report a net headcount increase of 0.7%, with TCS, Infosys and Wipro reporting 2.2%, 7.6% and 9.5% headcount declines, respectively.
HCL earned $8.59 billion in revenue from the Americas, up 6.4% from FY23 for the region.