NEW DELHI : HCL Technologies Ltd topped its closest rivals not only with better revenue growth in financial year 2023-24 but also as the only information technology services company to actually add to its total employee count.
However, while its 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, HCL Tech 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 services companies to have added net headcount through FY24. And you’ve spoken of hiring 10,000 freshers in FY25. Are there any specific hiring areas?
Yes. There are lots of new programmes we have on data analytics, SAP tools and cyber security—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.
Speaking of training, there’s been much talk about training and upskilling employees for generative AI. Is this an expensive procedure?
Not really. Most of us (IT services firms) have established training processes, internal capabilities and tools at hand for it.
We’ve kept up training expenses, since the technology industry constantly needs their talent base to be upskilled. Training employees on generative AI skills is a part of this itself, and there’s no increase to the cost of training because of generative AI.
On generative AI, you’ve still refrained from disclosing any revenue figure from this subset, despite conversations in this field being ongoing since early 2023. Are clients being conservative about adopting this technology?
There is a very widespread adoption of generative AI ongoing right now. However, companies are still figuring out how to scale adoption of generative AI, and gauging returns on investments in this field. All of this is yet to be evaluated by clients.
Take cloud migration, for example—many customers moved on it aggressively, and then realized that their adoption strategy should have been different. They should have modernized their operations and data, and then migrated to cloud platforms as required.
There’s a learning (for generative AI) in the cloud migration story, which will help in the generative AI transition as well. The approach is now steadier.
Have you so far received any $1 million-plus generative AI deals yet?
Yes, several.
