HCLTech FY guidance stays muted despite $2.4 billion deal momentum

ET Intelligence Group: HCL Technologies reported marginally better than anticipated financial performance for the June quarter where analysts had set lower expectations amid weaker sentiments towards the IT sector marred by delayed project executions and slower decision making by clients.The country's third largest software exporter reported higher new deals momentum during the quarter with a total contract value of $2.4 billion compared with $1.9 billion in the previous quarter and maintained that the order pipeline was strong and deal booking would improve further in the September quarter.

However, this optimism did not reflect in its full year revenue and operating margin guidance which remained unchanged from the prior quarter at 1-4% revenue growth in constant currency with a margin band of 17.5-18.5%.132378652Similar to Tata Consultancy Services (TCS), it also announced an investment in the datacentre to help deliver full stack artificial intelligence (AI) related solutions.

Barring an occasional spurt, the stock may remain range-bound until clarity on trend in discretionary client spending emerges.The ₹3,500 crore capital expenditure on the datacentre project to create a 50 megawatt facility will be funded through a combination of debt and equity though more clarity is awaited.

Last October, TCS, the country's largest software exporter, became the first top tier Indian IT company to announce a datacentre investment estimated at around ₹55,000 crore to create one gigawatt facility.At the time, HCLTech had no intentions to foray into such a venture.

However, almost a year later, it has decided to build such capabilities citing a scarcity of datacentre capacity required for the compute or training stage of AI models.

Such projects are likely to yield benefits in medium-to-long term and their success will depend upon effective customer engagements and agility to handle technological shifts.For the June quarter, HCLTech's revenue fell by 0.9% sequentially to $3,650 million while operating margin improved by 40 basis points to 16.9%.

In rupee terms, revenue and net profit rose by 1.8% and 3% to ₹34,579 crore and ₹4,624 crore respectively. ...