HCL Tech Q3 Results Review - Software Shines; Solid Beat Across Lines; Retains Guidance: Dolat Capital

Dolat Capital Report

HCL Technologies Ltd. reported strong revenue growth momentum of 5% QoQ in constant currency terms (our estimate: 2.5%), where services (IT and engineering research and development – 90% of revenue) grew 2.2% in while HCL Software saw 30.5% CC growth driven by 26 software-as-a-service deals.

Operating profit margin at 19.6%, above our estimate of 18.3%, led by favorable revenue mix (seasonal gains in HCL Software), while serviced margins remained stable as gains on forex (70 bps), pyramid optimisation (40 bps), and lower sub-con (60 bps) were offset by furloughs.

Net new total contract wins stood at $2.3 billion in Q3, up 10% YoY (up 13% on nine months-FY23 basis), while annual contract grew 1.9% YoY. It won 17 large deals – seven in services and 10 in software.

Q3 beat, narrowed guidance and large TCV wins raises our confidence in HCL Tech to deliver financial outperformance over FY23-FY25E.

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