TCS vs HCLTech Q3 FY24

TCS reported Q3 FY24 revenue of INR 63,583 crore, up 4% YoY, with operating margin expanding 70 bps sequentially to 25%. Net profit stood at INR 11,735 crore, with net margin at 19.4%. Growth was driven by cloud and cybersecurity, with strong performance in India (+23.4% YoY) and UK (+8.1% YoY), while North America declined 3% due to macro uncertainties. Deal wins totaled $8.1 billion, broad-based without mega deals. Management noted no change in discretionary spending, with clients prioritizing cost optimization. GenAI is moving from POC to production with four deployments, but revenue impact remains small. Attrition improved to 13.3%. Guidance remains cautious; no specific revenue or margin targets given. Risk: prolonged weakness in North America and BFSI could delay recovery.

Guidance read

BFSI growth expected from Q4: Management expects BFSI to bottom out and grow from the coming quarter, driven by deal wins and seasonal bounce-back. India growth momentum to continue over 4-6 quarters: BSNL deal will contribute over the next 4-6 quarters, with momentum picking up quarter on quarter. Margin improvement momentum to continue: CFO stated that levers like productivity, utilization, and subcontractor costs offer further scope for improvement, though no specific target given. Fresher hiring of 40,000 for FY24 still on track: CHRO reaffirmed the plan to onboard 40,000 freshers in FY24, with hiring progressing as per schedule.

Risk read

Key risks include Prolonged weakness in North America and BFSI — North America revenue declined 3% YoY and BFSI degrew 3% YoY. Management could not provide a timeline for recovery, citing macro uncertainties.; Disconnect between TCV and revenue growth — Analyst noted that despite strong deal wins, revenue growth has been muted, partly due to reprioritization of older programs. Management confirmed this trend.; GenAI revenue impact uncertain — GenAI is still in early stages with only four production deployments. Management could not provide a timeline for meaningful revenue contribution.; Employee headcount decline may continue — Headcount declined by 5,600 in Q3. CHRO said further decline would not be surprising, which could signal lower utilization or demand..

Promise ledger

Of 2 tracked promises, management 0 met, 0 close, 2 missed.

HCLTech delivered a strong Q3 FY24 with 6% sequential revenue growth in constant currency, the highest since Q3 FY21. Services revenue grew 3.1% QoQ despite furloughs, while software revenue rose 5% YoY. Operating margin improved to 19.8%, up 126 bps QoQ, driven by software outperformance. Net income reached a record INR 4,350 crore. Bookings YTD stood at $7.5 billion, up 10% YoY, with 18 large deals. Attrition fell to 12.8%, the lowest in several quarters. Management guided FY24 revenue growth of 5%-5.5% and margins of 18%-19%, with services expected at the higher end. Q4 growth is expected from large deal ramp-up, furlough reversal, and ER&D momentum. However, discretionary spending remains soft, and GenAI contributions are still nascent. A key risk is the uncertain demand environment in Americas and potential headwinds from macro uncertainty.

Guidance read

FY24 revenue growth guidance of 5%-5.5%: Total revenue growth for FY24 is expected in the range of 5%-5.5% in constant currency, with services trending towards the higher end. FY24 operating margin guidance of 18%-19%: Operating margins for FY24 are expected to be between 18% and 19%. Q4 services growth driven by four factors: Q4 services growth expected from large deal ramp-up, furlough reversal, ER&D momentum, and rest of portfolio.

Risk read

Key risks include Soft discretionary spending in IT services — Management noted that discretionary spending remains soft with no change from previous quarters, which could impact growth.; Uncertain demand environment in Americas — Despite strong growth, the Americas demand environment remains challenging, which could affect future performance.; GenAI revenue still nascent — GenAI programs are currently small and in pilot stages; significant ramp-up is expected only over coming quarters.; Potential margin pressure from wage hikes — Wage hikes impacted services margins by 65 bps in Q3, and Q4 will see a smaller impact of 20-25 bps..

Promise ledger

Of 1 tracked promise, management 0 met, 0 close, 1 missed.