Top year for HCL Tech ends with weak signals for next

BENGALURU/NEW DELHI: Strong revenue growth in FY24, lowkey 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 the company’s growth potential in FY25.

“The macro situation will be similar to what we saw in FY24. Our revenue growth guidance factors 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,” said Prateek Aggarwal, chief financial officer of HCL Technologies.

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.