Detailed narrative
HCL Technologies delivered a robust performance in Q3 FY25, marking a significant milestone with its highest ever EBIT and net income. The company reported a total revenue of $3,533 million, reflecting a 3.8% sequential growth and a 4.1% year-on-year increase in constant currency. Operating margin stood at 19.5%, improving by 93 basis points quarter-on-quarter, while net income reached $544 million, representing 15.4% of revenue. This strong profitability was partly attributed to the HCL Software business, which contributed 114 basis points to company-level margin improvement and achieved an all-time high EBIT percentage of 34.5%.
The Services business, a key growth driver, recorded $3,145 million in revenue, growing 2.2% sequentially and 4.9% year-on-year in constant currency. This was supported by IT and Business Services growing at 1.5% sequentially and 5.8% year-on-year, and Engineering and R&D Services growing 5.4% sequentially and 1.1% year-on-year in constant currency. While HCL Software saw an 18.7% sequential increase, it experienced a 2.1% year-on-year decline in constant currency, with its Annual Recurring Revenue (ARR) at $1.022 billion, down 0.6% year-on-year. Geographically, Americas led with 6.2% YoY growth, followed by Europe at 2.6% YoY, both in constant currency. Verticals like Retail and CPG showed strong 13.7% QoQ growth, and Technology and Financial Services grew 2.5% and 1.9% QoQ respectively.
In terms of new business, HCLTech secured $2.1 billion in total contract value (TCV) bookings for Q3, with Annual Contract Value (ACV) growing 23% year-on-year and 9% sequentially. The company noted a trend of smaller deals converting faster, aligning with client spending patterns. On the people front, the employee count reached 220,755, with a net addition of 2,134, and LTM attrition stood at 13.2%. Strategic initiatives focused on AI and GenAI, with the cost of using conversational AI models dropping over 85% since early 2023, making more use cases viable. HCLTech is leveraging AI for legacy modernization, data pipeline improvements, and cloud adoption, and has launched new AI and cloud-native labs.
Management provided an updated full-year FY25 guidance, projecting revenue growth of 4.5% to 5% year-on-year in constant currency, including approximately 50 basis points from the HPE CTG acquisition. Services revenue growth is also expected to be in the 4.5% to 5% range, while the EBIT margin guidance remains unchanged at 18% to 19%. The organic Q4 FY25 ask rate for Services is projected between -1.32% and +0.6%. Management acknowledged a softer Q4 outlook due to the completion of a large transformation program and a planned ramp-down in a mega telecom deal, with some residual impact expected in Q1 FY26.
During the Q&A, management expressed confidence in the overall demand environment, noting improvements in discretionary spending across most verticals, excluding Life Sciences, Healthcare, and Public Services. The automotive sector is expected to face challenges for "one or two more quarters" before potential recovery. HCLTech also highlighted its low reliance on H1B visas, with nearly 80% of its US employee base being local, mitigating concerns about potential policy changes. The company remains focused on leveraging its strong pipeline and strategic investments in AI and digital transformation to capitalize on future growth opportunities.