HCL Technologies Net Profit Falls by 11% to Rs 3,534 Crore, Misses Analysts’ Estimates

HCL Technologies Net Profit Falls by 11% to Rs 3,534 Crore, Misses Analysts’ Estimates

The June quarter saw the IT company hire 1,597 new employees, the fewest in the previous five quarters. Even attrition for the June quarter was 16.3%, the lowest in the last five quarters.

HCL Tech, the third-largest Indian IT company in the nation, reported profits for the April-June quarter that fell short of expectations in terms of net profit and sales. At Rs 3,534 crore, the company’s net profit decreased 11.2% sequentially. To Rs 26,296 crore, revenues decreased by 1.1% from quarter to quarter.

EBIT, or earnings before interest and taxes, was Rs 4,460 crore during the quarter compared to Rs 4,836 crore the quarter before.

HCL Technologies, one of India’s leading IT services companies, has reported a decline of 11% in its consolidated net profit to Rs 3,534 crore for the quarter ending in June 2023. During the same quarter of the previous fiscal year, the company had a net profit of Rs 3,969 crore.

The recent figures need to meet the estimates proposed by leading financial analysts, indicating a challenging quarter for the Noida-based company.

HCL Technologies reported a marginal increase of 2.3% in revenue, standing at Rs 20,589 crore for the first quarter of FY 2023-24. This is compared to Rs 20,106 crore registered during the same period in FY 2022-23.

In terms of both sales and EBIT, the business has kept its full-year outlook unchanged. CEO and MD of HCLTech C Vijayakumar stated, “We continue to maintain our revenue projection of 6 to 8% for FY24 in constant currency. We also expect our operating margin to be between 18% and 19% for fiscal year 24.

Even though the company’s bookings dropped to roughly $1.6 billion in June, he claimed they had been in the $2 billion and above range for the previous seven quarters. The $20 million clients decreased from 131 in March to 127 in June, another indication of the stress.

The company’s board of directors has announced an interim dividend of Rs 10 per equity share valued at Rs 2 for the 24th fiscal year. The interim dividend payment will begin on July 20, 2023, the record date. The interim dividend will also be paid on August 1, 2023.

In the June quarter, the company’s overall workforce decreased only by 2,506 to 2,23,438. The business claimed it had yet to fill some of the unfilled positions caused by attrition. In comparison, the company added 3,674 net during the March quarter.

The IT company hired 1,597 new employees in the June quarter, the fewest in the previous five quarters. Even the attrition rate, 16.3% for the June quarter, was the lowest in the last 5.

During the first quarter of FY22-23, the company’s Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) totalled Rs 5,026 crore. This amount was slightly less than the Rs 5,237 crore reported in the previous quarter. The EBITDA margin has declined from 26.0% in the same quarter the last year to 24.4% in Q1 FY23-24.

These numbers point towards a squeezed profit margin, which is a clear sign of increasing costs and expenses, possibly from wage inflation, hiring costs, and higher investment in digital transformation services.

Reacting to the earnings announcement, HCL Tech’s share price dropped by 3% in the early trade on the Bombay Stock Exchange, reflecting investor sentiment and concerns over the company’s growth trajectory.

HCL Technologies’ lower-than-expected financial performance has raised eyebrows among industry analysts, who had estimated a net profit of around Rs 3,800 crore. They believed that despite the pandemic, the increasing demand for digital services would translate into higher profit margins for IT firms like HCL.

Despite the disappointing quarter, HCL’s management remains optimistic. In a statement, the company attributed the net profit decline to increased investments in its talent pool and digital capabilities, pointing out that these investments are part of a strategic initiative to accelerate growth in the long term.

HCL Technologies has also emphasized its robust deal pipeline and sustained demand in digital transformation, cloud services, and artificial intelligence as promising areas for future growth. The firm’s management reiterated its commitment to its growth strategy, expressing confidence that these investments would yield positive results over the coming quarters.

While acknowledging the miss, several industry analysts still view HCL’s situation positively. The company’s investments will likely deliver future growth, with potential rewards outweighing short-term pains. The company’s focus on digital transformation services, cybersecurity, and cloud computing positions it well in a post-pandemic business environment where these areas are seeing booming demand.

However, some are more cautious, highlighting the need for HCL to carefully manage its costs and expenses to ensure that growth investments don’t undermine profitability.

The chief people officer of HCLTech, Ramachandran Sundararajan, stated, “Attrition level continues to be a grand narrative. We have decided to postpone our yearly assessment by an entire quarter. He continued by saying that the choice had been made after considering recruiting and salary trends from prior years.

Sundararajan continued by saying that during the past two years, the firm has invested in hiring first-year students who undergo training cycles before becoming productive. The corporation didn’t fill open positions caused by attrition since they are now increasing the company’s productive capacity.

The recent quarterly results highlight a period of strategic investment for HCL Technologies. The IT giant has consciously prioritized long-term growth, albeit at the cost of short-term profitability. While this has led to an 11% decline in net profit, missing estimates for this quarter, the coming quarters will be a crucial litmus test for the company’s strategy. If triumphant, HCL Technologies could emerge more vigorous, with an enhanced capability to meet the rising demand for advanced IT services.