DQ Top 20 RANK 3 - HCLTech The US Banking Sector has Sneezed, Time to Prep for a Cold 

How well it will fight the ripples of what happened in the US, will determine its own health and near-future fitness. 

It’s hard to stay immune to banking tremors when you are dedicated to this vertical in a strong way. The recent SVB-and-more crisis in the US cannot be ignored by key IT players serving this market. 

However, it is good to see that HCLTech bagged 57 large deals with TCV (New Deal Wins) of US$8.85 billion in FY 2023. The fact that 32 were in services and 25 in software – is a good sign of continuing to stand strong when a lot of banking whiplash is making IT companies struggle with their BFSI and America business. The company assures of a pipeline that is near an all-time high and is confident of its differentiated business mix and strong client demand for its offerings. 

The full-year revenue was at US$12.6 billion, up 9.6 percent YoY on the back of this strength—it seems. The strong deal pipeline came from its portfolio of digital, cloud, engineering, and software. 

Let’s note that revenue for the year crossed the `100,000 crore milestone while constant currency revenue was up 13.7 percent. Perhaps, services could be a good balancing lever amidst new quakes being felt by Indian IT biggies in the last few months. 

C Vijayakumar, CEO & Managing Director, HCLTech 

 “We have delivered a stellar performance in FY’23, crossing `1,00,000 crores of revenue powered by Industry leading services growth of 15.8% in constant currency. Our net new bookings for FY’23 grew by 6.6%. Our pipeline is near an all-time high, which reflects our differentiated business mix and strong client demand for our offerings. We have added 3,674 employees this quarter and overall employee strength has now grown beyond 2,25,000. All these set us well in FY’24 for a healthy revenue growth in the 6-8% range with Operating Margins in the 18 -19% range.”

HCLTech’s services revenue for the quarter was up 10.6 percent CC (0.6 percent QoQ). HCL Software revenue was up 8.2 percent YoY and digital revenues, it said, accounted for 37.5 percent of HCLTech services revenues. 

It will, nonetheless, have to brace up for the butterfly-led-storms of the banking meltdown in the US – especially as in the year ending March 2023, America stood strong as a geography with 64.1 percent revenue share, followed by Europe (28.4 percent) and ROW (7.6 percent). 

Key Wins and Partnerships 

• Deal from Heubach Group, a global pigment manufacturer 

• Business from State Farm, the leading provider of auto, home, and commercial insurance, (for IT service desk and infrastructure operations, modernization of hybrid cloud environment). 

• Business from Mattel Inc., a leading global toy company (for transformation across Mattel’s global technology landscape—across applications, infrastructure, and information security domains). 

• On December 12, 2022, HCLTech, also expanded its multi-year contract with Mondelez International, to enhance Mondelez International’s cybersecurity and transform digital workplace services globally 

• Partnered with Temenos, a leading banking software company (for the digital transformation of banks and other financial institutions) 

• Inked a strategic alliance with Volante Technologies, a global provider of cloud payments and financial messaging solutions, to drive payments modernization to help financial institutions. 

Vertical-wise too financial services were at the top (with 20.7 percent) – showing a clarion call for the next few months till the banking chaos subsides. The good news is that not far behind was manufacturing (19.1 percent), then life sciences and healthcare (16. 9 percent), and technology and services (14.9 percent). Retail and telco were, however, in single-digit zones at about nine percent revenue share each). If HCL can build up these verticals well, it won’t have to worry about placing too many eggs in one basket—and walk on eggshells. 

Ways to beat that US Achoo! 

In these wins, the company is playing its strong card of digital expertise well. For instance, HCLTech will serve as Mattel’s primary IT digital transformation partner for the next several years. With Volante too, it aims to jointly develop centers of excellence (CoE) in India and Romania to support the configuration, customization, integration, and implementation of Volante’s ecosystem of business services for payments modernization. This will help to scale up its international footprint – in addition to the plans it announced in Mexico, earlier. It announced plans to hire 1300 employees over the next 2 years to serve its local and international client base across industries. This will become the sixth technology center in Mexico – and will focus on creating next-generation digital solutions. 

The company is also the Official Digital Transformation partner of the New York Giants, New York Jets, and MetLife Stadium. Last year, it bagged a multi-year partnership with Formula One team, Scuderia Ferrari. 

Going forward, Services revenue, which is important for a majority of HCLTech’s topline, could grow between 6.5-8.5 percent for the year – as per some estimates. That would be quite helpful as the IT industry is facing a tough macroeconomic environment in the core markets of Europe and the US. With constrained and contracted tech spends, especially delays on long-term deals – every ounce of support counts right now. Especially as HCLTech has substantial exposure to the troubled BFSI segment in key US and Europe markets. Global research and broking firm JP Morgan has put HCLTech on its “negative catalyst watch”. There are fears of near-term risks and downside risks to demand. 

In its efforts to bolster new future levers, the company is betting on new locations and tech areas too. Like the HCLTech Q-Labs – created to help clients to explore and scale customer-ready deployments of quantum applications and to incubate early-stage research for industrial-scale quantum computing. The company is also working on its automation and AI capabilities – like what it did to enable Mondelēz International to provide an intuitive, on-demand personalized user experience. 

All these efforts would be worth more than what they seem – in the long horizon as the company de-risks its business from current dependencies, without losing sight of the new juice that can be extracted from the same markets. Some Vitamin C always helps.  

BY Pratima H