HCL Tech Adjusts Revenue Growth Outlook Amidst Economic Uncertainty

On Thursday, India’s HCL Tech, ranked as the country’s third-largest IT firm by market capitalization, announced a reduction in its full-year revenue growth outlook, reflecting concerns over near-term spending patterns influenced by an uncertain demand landscape and a challenging macroeconomic environment.
HCL Technologies for businessHCL Tech now anticipates organic growth for fiscal year 2024 to be in the range of 4-5 percent year-on-year in constant currency terms, a decrease from the previously projected 6-8 percent. Additionally, the company expects growth, including the acquisition of German firm ASAP Group, to hover between 5-6 percent.

In a strategic move, HCL Tech had disclosed in July its intention to acquire ASAP Group, a prominent automotive engineering services company, for a notable $280 million.

Despite the adjustments in growth projections, the company reported a consolidated net profit increase of 9.8 percent to 38.32 billion rupees ($460.35 million) in the second quarter, slightly surpassing LSEG analysts’ average expectations of 37.12 billion rupees. However, HCL Tech’s consolidated revenue from operations witnessed an increase of over 8 percent to 266.72 billion rupees, falling short of estimates that were pegged at 268.14 billion rupees.

These developments follow similar adjustments made by larger industry peers such as Infosys, which trimmed the upper end of its full-year revenue outlook, and TCS, which missed Q2 revenue estimates due to weak client spending. Both companies highlighted an uncertain demand outlook for the near term, with concerns over when discretionary spending would regain momentum.

Economic fears, particularly regarding a slowdown and prolonged higher interest rates, led key clients in the U.S. and European markets to exercise caution and reduce their expenditures. Industry observers are closely monitoring the situation, keeping an eye on how IT companies navigate these economic challenges.

Biswajit Maity, Sr Principal Analyst, Gartner, said: “HCL’s recent growth can be attributed to various factors, including its deep understanding of the market, a culture of innovation, a customer-centric approach, expertise in specific industries, transformation capabilities, and a strong dedication to sustainability.”

While traditionally focusing on large enterprises, HCL is increasingly tailoring its offerings to midsize organizations. In addition, it has created a digital experience office, which is responsible for addressing all queries from dissatisfied users. It reflects their customer-centricity.

HCL’s attrition has certainly improved over the last year, but it remains slightly higher than average compared to its peers, which could impede its growth trajectory. Additionally, HCL Technologies needs to closely monitor its services to ensure that the substantial increase in workload does not adversely affect the overall quality of service promised to its clients, Biswajit Maity said.