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Steady revenue growth: HCL Tech Q1FY25 revenue in dollar revenue de-grew by 1.9% QoQ and grew 5.1% YoY to USD 3,664mn. Its revenue in rupee was at Rs 28,057cr, down by 1.6% QoQ and up 6.7% YoY. The growth was largely led by the service segment (contributes 90.4% of revenue) as it grew by 7.1% YoY to Rs 25,364cr. Amongst segments, in CC terms, telecommunication & Media led the growth with 71.3% YoY & 36.5% QoQ followed by Retail, manufacturing, & Technology with 10.2% YoY, 4.5% YoY and 3.5% YoY. Amongst geographies, both America and Europe performed well with America gaining 9.2% YoY while Europe gained 3.7% YoY.

De-growth in margin: The Company’s EBIT grew by 8% YoY but de-grew by 4.6% QoQ to Rs 4,795cr due to rise in expenses. EBIT margin came in 17.1%, witnessing increase of 21bps YoY but decline of 54bps QoQ. Despite it’s de-growth in EBIT, company was able to grow PAT due to its higher other income. Going ahead, management has guided for EBIT margins in the range of 18-19% for FY25.

Attrition remained low: LTM attrition increased slightly to 12.8% in Q1 (from 12.4% in Q4FY24), which the management highlighted would stabilize at similar levels. The Management has reiterated its plan to hire 10,000 fresher in FY25.

Retained guidance for FY25: HCL Tech management has retained its guidance for FY25 as it expects CC revenue growth to be in the range of 3-5% YoY while revenue from services expected to be in the range of 3-5% YoY. Further, they have maintained EBIT margins in the range of 18-19%.

Key highlights: 1) Managements maintains its revenue growth guidance to range between 3%-5%, while on margin front they expect to deliver between 18% -19%. 2) For Q1FY25, its order book grew by 25.2% YoY but declined 14.4% QoQ to USD 1960mn. 3) Europe and America continues to remain strong for the company seeing growth of 3.7%/9.2% YoY in CC while rest of world saw a decline 3.6% Yoy CC. 4) It is seeing increased client interest in GenAI and has developed platforms such as HCLTech AI Force and GenAI Enterprise Foundry to tap into emerging opportunities. They are well positioned to capitalized Gen AI led demand and growth. 5) Total headcount was down 8080 or 3.6% QoQ, primarily due to State Street JV exit. During this fiscal they are targeting to train 50,000 people on GenAI and/or AI skills, of this annual target 33% has already been achieved in this quarter only. 6) It declared an interim-dividend of Rs 12/share for the quarter ended.

Outlook & Valuation: HCL Tech reported mixed numbers for Q1FY25 with YoY revenue as well as PAT growth while EBIT margin seen a 21 bps jumps YoY. Going ahead, management has retained its guidance for FY25. Management commentary suggests discretionary spending pressure and delayed decision making remains but they also expects growth to resume in 2Q across all verticals and markets except BFSI. Further, HCL has developed Gen AI platforms such as AI Force and GenAI Enterprise Foundry to capitalize GenAI led demand and growth. On the financial front, we estimate its revenue/EBIT to grow by CAGR of 6.7%/9.4% over FY24-26E and we have revised our rating to Accumulate with the target price of Rs 1,759.

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