HCLTech Seeks Revenue Diversification to Mitigate Risks

HCLTech eyes new revenue streams to diversify risks

To capitalise on new growth avenues, Shiv Nadar-founded IT services company HCLTech is looking to strategically expand its presence in markets like India, Africa, and the Middle East. HCLTech outlined its growth strategies to more than 100 analysts who attended an 'Investor Day 2024' meet in Mumbai.Billionaire Shiv Nadar-founded IT services firm HCLTech is looking to diversify risks and unlock new revenue streams, by expanding its presence in markets such as India, Africa and the Middle East. HCLTech outlined its growth strategies to more than 100 analysts who attended an 'Investor Day 2024' meet hosted by the company in Mumbai on Wednesday. The company also highlighted its strength in engineering, research & development (ER&D), and plans to leverage increasing semiconductor demand, expand market participation in focus areas and new frontier markets, and grow within its top current and potential clients, some of the analysts who attended the event said. "The company wants to tap high-potential regions and expand, amid the ongoing slowdown in the core American markets denting business over the past five-six quarters," one of the analysts said on the condition of anonymity. "HCLTech spoke of improving the mix of verticals and geographies, gaining of market share, organic development of digital skills, its clients' cloud migration activities and inorganic augmentation of capabilities." The management showcased its chip-to-cloud offerings and growth areas of financial services; telecom, media & entertainment (TMT); and automotive sectors, alongside capabilities around artificial intelligence, data and cybersecurity to compete with larger rivals Tata Consultancy Services and Infosys. It has set up an AI research team besides its AI and generative AI offerings -- AI foundry, AI force and AI labs -- and plans to train around 50,000 people in GenAI. Among the challenges, a Nuvama report pointed out that the deal booking run-rate should be $2.3-2.5 billion. "Currently, it is low due to relatively less participation in G2000 (Global 2000) clients. While HCLTech is strong with many clients in G2000, it has no presence in one-third of them. HCLTech is opportunistic with the remaining clients but lacks strong relationships," it said. The investor meet comes days after market leader TCS and smaller rival L&T Technology Services showcased their technology prowess and upcoming plans before investors. While the $250 billion Indian IT industry is under duress due to subdued demand, HCLTech's management said it is hopeful of the company and the industry posting double-digit growth during the next five years. The Noida-headquartered company is seeing an improvement in demand in its traditionally strong financial services sector, which remained subdued in the April-June first quarter largely owing to a breakup from its joint venture partner State Street, besides a slowdown in discretionary spending by big global corporations and high interest rates. According to the Nuvama report, HCLTech aims to grow faster than the market in ER&D and business process management. HCLTech is also looking to consolidate its infrastructure leadership via cloud modernisation and capitalise on cybersecurity opportunities. Through an engineering-led approach the firm also expects to grow its digital process operations (DPO) achieving 50% efficiency, making DPO the fastest growing business in coming years, the brokerage firm said. Most analysts expect HCLTech to grow faster than its rivals. "Demand for chip design is strong and HCLT's chip-to-cloud offerings (complemented by its engineering and IT offerings) position it well to capture semicon demand. However, services spending in hyperscalers is currently weak (owing to capex on data centres and GPUs). We believe this could lead to short-term volatility in ER&D revenues which, if managed well, could position HCLT as a growth leader among large-caps over the medium term," Motilal Oswal said in a report. In the first quarter of FY25, HCLTech posted 20.5% year-on-year growth in net profit on a 6.7% increase in revenue. Its FY25 revenue growth guidance is in the 3-5% range. Shares of the company closed 1.94% higher at Rs 1,752 on the BSE Thursday, outperforming the benchmark Sensex that gained 0.43%. Over the ten-year period ended March 2024, HCLTech posted a compound annual growth rate of 18.7%, generating the highest total shareholder returns (TSR) among the top Indian IT companies, the Motilal Oswal report said. Rivals TCS, Infosys and Wipro recorded compound annual growth rates of 16.5%, 16.9% and 10%, respectively, during this period. In a one-year period, its TSR was 47.1%, as against 23.7% by TCS, 7.5% by Infosys and 32.7% by Wipro. "Further, its FCF (free cash flow) metrics have meaningfully improved recently and are now comparable to both TCS and Infosys. We believe its current performance warrants a multiple premium to Infosys," Motilal Oswal said. After its results announcement, HCLTech chief financial officer Prateek Aggarwal said, "Our cash flow generation remains robust with the last 12 months' free cash flow at Rs 21,637 crore, 133% of PAT and 88% of Ebitda."

HCLTech eyes new revenue streams to diversify risks

Billionaire Shiv Nadar-founded IT services firm HCLTech is looking to diversify risks and unlock new revenue streams, by expanding its presence in markets such as India, Africa and the Middle East. HCLTech outlined its growth strategies to more than 100 analysts who attended an 'Investor Day 2024' meet hosted by the company in Mumbai on Wednesday. The company also highlighted its strength in engineering, research & development (ER&D), and plans to leverage increasing semiconductor demand, expand market participation in focus areas and new frontier markets, and grow within its top current and potential clients, some of the analysts who attended the event said. "The company wants to tap high-potential regions and expand, amid the ongoing slowdown in the core American markets denting business over the past five-six quarters," one of the analysts said on the condition of anonymity. "HCLTech spoke of improving the mix of verticals and geographies, gaining of market share, organic development of digital skills, its clients' cloud migration activities and inorganic augmentation of capabilities." The management showcased its chip-to-cloud offerings and growth areas of financial services; telecom, media undefined and automotive sectors, alongside capabilities around artificial intelligence, data and cybersecurity to compete with larger rivals Tata Consultancy Services and Infosys. It has set up an AI research team besides its AI and generative AI offerings -- AI foundry, AI force and AI labs -- and plans to train around 50,000 people in GenAI. Among the challenges, a Nuvama report pointed out that the deal booking run-rate should be $2.3-2.5 billion. "Currently, it is low due to relatively less participation in G2000 (Global 2000) clients. While HCLTech is strong with many clients in G2000, it has no presence in one-third of them. HCLTech is opportunistic with the remaining clients but lacks strong relationships," it said. The investor meet comes days after market leader TCS and smaller rival L&T Technology Services showcased their technology prowess and upcoming plans before investors. While the $250 billion Indian IT industry is under duress due to subdued demand, HCLTech's management said it is hopeful of the company and the industry posting double-digit growth during the next five years. The Noida-headquartered company is seeing an improvement in demand in its traditionally strong financial services sector, which remained subdued in the April-June first quarter largely owing to a breakup from its joint venture partner State Street, besides a slowdown in discretionary spending by big global corporations and high interest rates. According to the Nuvama report, HCLTech aims to grow faster than the market in ER&D and business process management. HCLTech is also looking to consolidate its infrastructure leadership via cloud modernisation and capitalise on cybersecurity opportunities. Through an engineering-led approach the firm also expects to grow its digital process operations (DPO) achieving 50% efficiency, making DPO the fastest growing business in coming years, the brokerage firm said. Most analysts expect HCLTech to grow faster than its rivals. "Demand for chip design is strong and HCLT's chip-to-cloud offerings (complemented by its engineering and IT offerings) position it well to capture semicon demand. However, services spending in hyperscalers is currently weak (owing to capex on data centres and GPUs). We believe this could lead to short-term volatility in ER&D revenues which, if managed well, could position HCLT as a growth leader among large-caps over the medium term," Motilal Oswal said in a report. In the first quarter of FY25, HCLTech posted 20.5% year-on-year growth in net profit on a 6.7% increase in revenue. Its FY25 revenue growth guidance is in the 3-5% range. Shares of the company closed 1.94% higher at Rs 1,752 on the BSE Thursday, outperforming the benchmark Sensex that gained 0.43%. Over the ten-year period ended March 2024, HCLTech posted a compound annual growth rate of 18.7%, generating the highest total shareholder returns (TSR) among the top Indian IT companies, the Motilal Oswal report said. Rivals TCS, Infosys and Wipro recorded compound annual growth rates of 16.5%, 16.9% and 10%, respectively, during this period. In a one-year period, its TSR was 47.1%, as against 23.7% by TCS, 7.5% by Infosys and 32.7% by Wipro. "Further, its FCF (free cash flow) metrics have meaningfully improved recently and are now comparable to both TCS and Infosys. We believe its current performance warrants a multiple premium to Infosys," Motilal Oswal said. After its results announcement, HCLTech chief financial officer Prateek Aggarwal said, "Our cash flow generation remains robust with the last 12 months' free cash flow at Rs 21,637 crore, 133% of PAT and 88% of Ebitda."