HCLTech, India’s No. 3 software-services exporter, has reduced its revenue forecast for the current financial year, citing weaker-than-expected discretionary spending by its clients in the first half of the year. The company now expects organic revenue growth for fiscal 2024 to be between 4% and 5% in constant currency terms, compared to its previous forecast of 6% to 8%. This reduction in forecast reflects the challenging macroeconomic situation and the conservative approach taken by enterprises towards cash conservation.
The COVID-19 pandemic initially led to an increase in digital transformation projects for Indian IT services companies. However, as the macroeconomic situation turned volatile, enterprises started scaling down and delaying updates to these projects in order to conserve cash.
HCLTech’s larger peers in the industry, Tata Consultancy Services (TCS) and Infosys, have also highlighted weak client spending on non-essential projects. Infosys recently trimmed its annual revenue forecast as well.
During a post-earnings media conference, HCLTech CEO C Vijayakumar acknowledged that the market is still hesitant about discretionary spending. He expressed that at the beginning of the year, there was an expectation that spending would partially recover, but due to the current macroeconomic conditions, it has not materialized.
Despite the challenges, HCLTech reported a 9.8% increase in its consolidated net profit to 38.32 billion rupees ($460.35 million) for the second quarter ended September 30. This beat analysts’ estimates, supported by the company’s efforts to control costs. However, consolidated revenue from operations fell slightly short of expectations.
HCLTech secured several new deals during the quarter, including contracts with clients such as Verizon, Siemens, and ANZ, totaling $3.97 billion. While the telecom and technology clients reduced spending, the financial services segment witnessed nearly 10% growth.
The company declared a dividend of 12 rupees per share held. HCLTech’s shares closed 1.75% lower on the day of the announcement.
In summary, HCLTech’s revenue forecast cut for the current financial year reflects the impact of weaker client spending on non-essential projects due to the macroeconomic uncertainties caused by the pandemic. The company, along with its peers in the industry, will need to navigate these challenges as they work towards growth in the coming years.
