HCL Tech likely to perform better in second half of FY25

Bengaluru, 6 May: HCL Tech is likely to see better growth prospects towards the second half of current financial year on the back of its large deal pipeline.

The company management had earlier indicated that the first quarter growth would decline by around 2 per cent on sequential basis.

“The management alluded the facts of anticipated project runoffs in Q1 of FY25, which include productivity commitments to one its large mega projects along with reprioritization of spends on its existing books, both these events would lead to a revenue decline of around 2 per cent Quarter on Quarter. It also indicted that the former is largely a part and parcel that usually comes along with the mega deal and is recurring in nature. Despite this impact, we believe the healthy deal TCV (total contract value) with a large mega win would likely to support FY25 growth beyond first quarter,” Prabhudas Lilladher wrote in a report.

“We expect the impact is limited to the IT service business while the momentum within ER&D with its new capability on the automotive engineering would support the overall FY25 growth,” the brokerage report said.

It, however, said that there is little scope for margin improvement in the near-term.

“Q4 margins have tapered off quite meaningfully, although it ended up delivering FY24 margin at the lower-end of the guidance band. We expect, the lack of anticipated growth along with the investment exercise towards service integration would provide lower headroom for margin improvement in the near-term,” the brokerage firm said.

HCL Tech posted 5 per cent revenue growth in constant currency term, which is the highest among all large Indian IT services providers. The company also saw its headcount rising in the fourth quarter as compared to the reduction of staffers by its peers.