HCL Tech grows on deal momentum; costs hit margin

IT services company HCL Technologies reported a consolidated net profit of $441 million in the second quarter of fiscal year (FY) 2022, up 1.2 percent sequentially. It grew 4 percent over the same period last year.

Noida-headquartered HCL Technologies’ revenue in the quarter ended September 2021 rose by 2.6 percent sequentially to $2.8 billion. It was up 11.3 percent on a year-on-year basis.

About 88 percent of HCL Technologies’ revenue comes from services, which grew by 5.2 percent over the quarter ended June 2021 to $2.5 billion. It rose 13.1 percent over a year ago.

"Growth across the services portfolio was led by our digital business, engineering and cloud services," C Vijayakumar, CEO of HCL Technologies. “Our robust pipeline and strong employee ramp-up augurs well for our business momentum going forward.” 

IT and business services grew by 5.2 percent sequentially to $2 billion, and the engineering R&D services (ERS) segment grew by 5.4 percent sequentially.

“The asset-heavy industries, which saw a big impact due to COVID-19 last year, have recovered because a lot of new programmes have kicked off,” Vijayakumar said at a press conference to discuss the second quarter earnings. "Digital ERS services are gaining traction led by Internet of Things, 5G and Industry 4.0." 

HCL Technologies' products and platforms business, which accounts for 11.6 percent of revenue, declined sequentially by 8 percent to $325 million, and by 5.5 percent on a year-on-year basis.

With rising costs, HCL Technologies' EBITDA fell by 1.4 percent sequentially and by 2.3 percent over a year ago.

“When you are hiring in such a heated market, the new hires come in at a higher cost,” said Prateek Aggarwal, Chief Financial Officer of HCL Technologies, during the press conference. "Skill allowances, and training cost are going up."

HCL Technologies’ attrition rate rose to 15.7 percent from 11.8 percent in the previous quarter, which in turn reflects the state of the IT industry's war for talent.

IT companies are ramping up hiring to manage the high demand, and talent is in short supply. They are spending more on training and re-skilling the workforce, offering them incentives like performance-based bonuses and promotions to retain talent.

HCL added 11,135 employees in the quarter ended September 2021. It will hire between 20,000 and 22,000 freshers in FY 2022, and plans to increase the target to 30,000 in the next fiscal year.

It closed the second quarter of FY 2022 with 187,634 employees.