HCL Technologies posted a softer than expected Q1 with revenue growth, margins and profits below expectations. Q1 TCV of New Deal wins stood healthy at US$ 1664 mn, up 37% YoY. Deal wins growth enabled by 8 Large Services deal wins and 4 significant product wins. Revenue growth declined led by decline in Products and platforms down 1% QOQ in CC terms and slower growth in IT& Business services at 0.3% QOQ in CC terms. Engineering R&D grew at 4.3% QOQ in CC terms. EBIT margins decline was higher than expected at 19.6% as compared to 20.4% in the last quarter and Profits were lower than expected at Rs 3214crore.

FY22 guidance retained: Revenue expected to grow in double digits in constant currency for FY22 and retained EBIT margin guidance of 19% to 21% for FY22. Revenue grew 0.7% QOQ and 11.7% yoy in CC terms. Shiv Nadar has been elevated to position of Chairman Emeritus and strategic advisor to the board. C Vijayakumar will now be CEO and MD of HCL Tech.

At the press conference C Vijayakumar, CEO, HCL Tech said, “looking ahead we remain confident of growth in next few quarters on the back of strong bookings and strong hiring.” Q1 TCV of New Deal wins at US$ 1664 mn, up 37% YoY. Both booking and pipeline remain healthy Europe had a blip QOQ due to delay in large deal transformation pipeline.

We don’t read too much in the blip in Europe as pipeline in Europe remains strong and bookings are robust. E R&D services posted best result. Growth was led by mode 2 services largely led by digital and cloud transformation deals. See lot of opportunities across verticals. Vijayakumar said, close to 70% of eligible employees are vaccinated and hope to complete vaccination for 100% of employees by quarter-end.

Prateek Aggarwal, CFO, HCL Technologies said the EBIT margin of 19.6% in Q1 has been within the guided margin range and the management has levers to protect margins. Some of the levers are offshoring, reducing average salary cost, and Automation.

Offshoring margins are better than total company margins. The company has expanded to Tier 2/3 cities in India, expanded in Sri Lanka and Vietnam which have better margins.

HCL TECH Q1FY22 REVIEW:

1. Revenue growth of 0.7% QOQ and 11.7% YoY in CC terms
2. Revenue at $2720 mn vs. $2696mn, up 0.9%
3. Revenue at Rs 20,068 cr vs Rs 19642 cr, up 2.2% QOQ
4. EBIT at Rs 3931 cr vs Rs 3980 cr, down 1.2% QOQ
5. EBIT margin at 19.6% vs 20.4% QOQ
6. PAT at Rs 3214cr vs Rs 2387 cr, up 34.7% QOQ and 9.9% yoy
7. Revenue growth CC terms QOQ %
8. IT & Business services 0.3
9. Engineering R&D 4.3
10. Products and Platforms -1.0
11. Revenue growth CC terms QOQ %
12. Financial services +2.9
13. Life sciences +5.4
14. Technology and services +1.6
15. Manufacturing -2.2
16. Telecom & media -1.9
17. Public services -3.4
18. Revenue growth CC terms QOQ %
19. Americas +2.6
20. Europe -3.9
21. Rest of world +2.4
22. Overall revenues +0.7