HCL an IT outlier, but CEO wary of macro pain India Inc to see 6-12% hikes this yr: study
INTERVIEW
HCL Technologies Ltd beat its closest rivals not only with better revenue growth in financial year 2023-24 but also as the only information technology (IT) services company to have actually add to its total employee count.
However, while the Noida-headquartered IT company’s overall performance satisfied market expectations, a paltry revenue growth projection of 3-5% for FY25 because of decreasing spending on IT in key global markets has raised concerns.
Similar macroeconomic pressures could continue on India’s $254 billion IT services industry, said C. Vijayakumar, managing director and chief executive of HCL Technologies, in a post-earnings interview with Mint. Nonetheless, the firm will work towards maintaining its profitability in light of the limited scope for the sector’s recovery in FY25, he said. Edited excerpts:
Your operating margin dropped 2.2 percentage points in the last quarter of FY24, and there was no margin expansion through the last fiscal year. Is growth for HCL Technologies coming at the cost of profitability?
Not really. We’ve managed to maintain our margin year-on-year, so we grew at similar profitability (as FY23). (As) for the March quarter, a very strong December quarter for our software business every year increases our margin at the time—this is seasonal, and explains that drop in the March quarter.
Plus, in our services business, we’d given salary increments for mid- and senior management in the March quarter. Those are the high-level reasons.
But overall, we’ve guided for operating margin to remain the same as FY23 and FY24. So we’re looking to grow at the same profitability, and not face a hit that many industry peers have (seen) over the past two years.
Do you expect any further pressures to maintain this profitability going forward?
We’ve offered broad-level guidance for the year, and at this point I’d want to stick to just that instead of giving further directional indications.
Is there stress in terms of billing projects and executing them, given the cautious commentary for FY25?
Client caution depends on the type of programmes (that we’re executing). Efficiency-led programmes have higher competitive intensity, but for any project involved in transformation, customers value capability.
Our pricing and execution of projects are dependent on the level of domain knowledge and capability that we bring to the table. It’s difficult to have a single answer for all projects.
Can you influence clients in spending on larger discretionary tech projects?
Fewer discretionary deals are what we have assumed in our planning and guidance.
At the end of the day, it’ll depend on how clients will prioritize tech programmes… This will be business-driven prioritization.
As service providers, I’m not sure if we can influence that.
Despite some optimism, your revenue growth guidance for FY25 is the lowest in three years. Could FY25 be even trickier than the previous two financial years?
We’re assuming that a similar macroeconomic environment will continue, and didn’t want to take a call on when the environment will rebound. Our guidance for revenue growth is still among the highest in the industry, despite taking all factors in.
You’re the only one among the top four IT firms to have added net headcount through FY24. And you’ve spoken of hiring 10,000 freshers in FY25. Any specific hiring areas?
Yes. There are lots of new programmes we have on data analytics, SAP tools and cybersecurity—we’ll continue to hire experienced talent in these domains. Outside of this, we’ll largely hire fresh talent, who will fuel our internal training programmes and work on key growth areas.
Ahighly competitive job market where companies are looking for specialists is likely to push many employers to offer an estimated 9-12% increments this year.
According to the Mint+Shine Talent Insights report, 34% of the human resource (HR) executives surveyed said they expected a hike of that range, possibly targeted to boost employee morale and prevent them from changing loyalties.
More than 3,000 HR executives and jobseekers were surveyed during the quarterly study conducted during the January-March period. Around 49% of the recruiters expressed a positive sentiment about the upcoming appraisal cycle.
Another sizeable segment of recruiters, roughly 25%, is planning more moderate raises of 6-8%. This aligns with the rising cost of living and acknowledges the value of experienced staff who contribute to the company’s success, 24.6 33.5 14.2 5.4 the report said.
Among jobseekers, around 24% of those surveyed said they expected a 10-15% salary hike, while another 24% expected a more than 20% hike. This shows jobseekers and employees were hopeful of even bigger hikes than employers expect to give this year.
The proposed increments follow a drastic slowdown in hiring over the past year by India Inc. During 2021 and early 2022, firms across sectors hired at a breakneck speed to transform their traditional businesses into digital ones. But since the second half of 2022, macroeconomic sluggishness, geopolitical tensions and private equity firms dialling down their investments had impacted the IT, startup and retail industries.
Some profiles are expected to get better hikes given their demand.
“Over the past few years, many sectors have seen a trend towards more substantial increments for tech and digital roles, while traditional roles may see steadier, moderate increases. The increments would follow a similar pattern as the previous year,” said Ruchira Bhardwaja, chief human resources officer at Kotak Life.
According to the Mint+Shine study, just 2% of the recruiters anticipate minimal raises of 0-2%. This comes on the back of economic challenges faced in certain industries and budget constraints limiting their ability to offer better increments.
However,evenwithstringent budgets, companies are ensuring that the top performers get a prominently higher raise and that can go as much as 1.7-1.8 times the average increment.
Companies like Tata Steel made changes in their appraisal process and organizational bands to offer more opportunities to their top performers.
‘‘ Our guidance for revenue growth is still among the highest in the industry, despite taking all factors in. C. Vijayakumar MD and CEO, HCL Technologies