HCLTechnologies Ltd. sees its near-term growth being supported by shorter tenure deals, even as it remains unsure of positive conversions of delayed software deals, Chief Executive Officer and Managing Director, C Vijayakumar, told NDTV Profit.
The company expects improvement in demand environment, even as the implied guidance of -1.3% to 0.6% for the fourth quarter flags softening momentum from the Verizon deal.
Though the services exporter's software business saw a sequential growth of around 19% due to seasonality, a softer year-on-year print of 2.1% decline in constant currency terms was below the management's expectations. "This growth moderation on a year-on-year basis is on the back of good growth for the prior quarters," the said in an analyst call earlier.
"Our software deals are delayed, and we can't say if they will convert positively or not," he told NDTV Profit.
The company expects improvement in demand environment, even as the implied guidance of -1.3% to 0.6% for the fourth quarter flags softening momentum from the Verizon deal.
Though the services exporter's software business saw a sequential growth of around 19% due to seasonality, a softer year-on-year print of 2.1% decline in constant currency terms was below the management's expectations. "This growth moderation on a year-on-year basis is on the back of good growth for the prior quarters," the said in an analyst call earlier.
"Our software deals are delayed, and we can't say if they will convert positively or not," he told NDTV Profit.
After TCS, HCLTech Sees Shortening Deal Cycles
The average duration of signed deals is getting shorter, indicating a pickup in demand, Vijayakumar said. "The propensity for smaller size deals and shorter tenure deals are going to increase due to changes in technology and generative artificial intelligence. Large deals could be broken into smaller deals, and AI deals could be done in phases," he explained.
Vijayakumar's outlook echoes that of top executives of India's largest software exporter. Tata Consultancy Ltd.'s K Krithivasan had earlier told NDTV Profit that deal cycles for the company were shortening, indicating a better decision-making environment.
Also Read: HCLTech Q3 Review: Brokerages Split On Outlook — Nomura Positive, Citi And Bernstein Cautious
Auto Drags ER&D Growth
While the company saw good momentum in the engineering, research and development space in the September and December quarters, Vijayakumar sees the auto segment softness to continue, despite significant ramp-downs in the other sectors' R&D.
"The slowdown in auto ER&D can get offset by good momentum we see in other areas," he said.
Commenting on the company's overall performance in other R&D verticals like telecom, technology and life sciences, he said that momentum in organic growth is expected to continue.
What Lies Ahead For HCLTech
The IT major lifted its revenue growth guidance for the fiscal from 3.5–5.0% on-year to 4.5–5.0% in constant currency terms. To clarify, the revision in the lower band of the guidance factors in the 50-basis-point contribution to revenue from acquisition of Communications Technology Group assets from Hewlett Packard Enterprise acquisition.
Now, while the ask rate for the fourth quarter ranges from -1.3% to 0.6% of sequential constant currency growth for the services business, Vijayakumar said that he sees an improvement in demand environment. He also expects there to be significant changes in the business landscape in the US over next few days as Donald Trump's swearing-in cements the country's policy direction.
In the March quarter, the company is planning a ramp-down in a mega deal in the services business, which will be visible in retail, CPG and telecom verticals.
Despite this, Vijayakumar indicated that HCLTech's margin pattern will be consistent going ahead, wherein the company starts the fiscal with a lower margin number, to be improved in the September quarter, with the peak coming in December and moderating by March-end.
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