Industry Overview:

The information technology industry in India comprises information technology services and
business process outsourcing. India has emerged as a global IT hub in the last two decades.
The IT industry has played a significant role in the growth of the Indian economy,
contributing to nearly 8% of the country’s GDP. The Indian IT staffing industry has been
growing at a rapid pace, and with the rise of new technologies, the future of this industry
seems to be going on the right track.

During the first week of March 2023, IT industry body National Association of Software and
Service Companies (Nasscom) made a statement that Indian technology sector is set to
grow at 8.4% in FY 2023 to reach $245 billion market size. India’s technology industry
revenue is estimated to be $245 Bn in FY 2023. Technology exports at $194 Bn, are expected
to grow at 9.4% in reported currency terms. In terms of FDI equity inflow, the computer
software and hardware sectors attracted the highest FDI in FY 2021-22.

As innovative digital applications permeate sector after sector, India is now prepared for the
next phase of growth in its IT revolution. India is viewed by the rest of the world as having
one of the largest Internet user bases and the cheapest Internet rates, with 76 crore citizens
now having access to the internet. India is one of the countries with the quickest pace of
digital adoption. This was accomplished through a mix of government action, commercial
innovation and investment, and new digital applications that are already improving and
permeating a variety of activities and different forms of work, thus having a positive impact
on the daily lives of citizens.

In the next five years, the IT staffing industry in India is expected to witness significant
growth. The industry is expected to grow at a CAGR of 10% during this period, driven by
factors such as the rise of new technologies, increased demand for skilled IT professionals,
and the growing reliance on data driven work. India's IT industry is likely to hit the US$ 350
billion mark by 2026 and contribute 10% towards the country's gross domestic product
(GDP), Infomerics Ratings said in a report.

Indian software product industry is expected to reach US$ 100 billion by 2025. Indian
companies are focusing on investing internationally to expand their global footprint and
enhance their global delivery centres. The IT industry added 2.9 lakh new jobs taking the
industry’s workforce tally to 5.4 million people in FY23.
One of the significant drivers of growth in the IT staffing industry is the rise of new
technologies. As organizations continue to adopt new technologies, they will require skilled
professionals to implement and manage these technologies. The demand for skilled
professionals in emerging technologies such as artificial intelligence, machine learning, and
block chain is expected to increase significantly in the coming years.

Another factor driving growth in the IT staffing industry is the increased demand for skilled
IT professionals. India has a large pool of skilled IT professionals who are proficient in
various technologies. This pool of talent is expected to grow in the coming years as more
students opt for STEM courses and the government invests in skill development programs.
The IT staffing industry will play a crucial role in connecting this pool of talent with
organizations that require their skills. The trend of remote work is also expected to
contribute to the growth of the IT staffing industry in India.

However, the IT staffing industry in India also faces several challenges that could impact its
growth in the coming years. One of the significant challenges is the shortage of skilled IT
professionals in emerging technologies. Although our large population gives us the cushion
to churn our manpower faster, but the bigger question is in terms of the skillsets and talent
this manpower possesses. As organizations continue to adopt new technologies, the
demand for skilled professionals in these technologies will increase, and the industry may
struggle to meet this demand.

Another challenge facing the IT staffing industry in India is the rise of automation. With the
increasing adoption of automation technologies, organizations may require fewer IT
professionals in the future, impacting the demand for IT staffing solutions in certain
businesses.

Despite the global headwinds, recession cautions and international politics impacting the IT
sector, India has shown resilience as businesses in India have witnessed increase in IT
spends, which in turn has accelerated the need for IT professionals. The rise of new
technologies, digital infrastructure, increased demand for skilled IT professionals etc. are
expected to drive this growth.

Introduction to HCL Tech:

Let's initiate our exploration with a focus on understanding HCL Technologies. HCL
Technologies Limited, is an Indian multinational information technology services and
consulting company headquartered in Noida. It is India’s third largest IT services firm.
The company engages in computer programming, consultancy, and related activities. It
operates through the following segments: Software Services; Information Technology (IT)
Services; and Business Process Outsourcing Services. The Software Services segment
provides application development and maintenance, enterprise application, next generation
software as a service application services, engineering, and research and development. The
IT Services segment provides management services involving customer's information
technology assets. The Business Process Outsourcing Services segment offers traditional
contact centre and help desk services; and the next generation services around platform
business process as a service. The company was founded by Shiv Nadar on November 12,
1991.

HCL now has a global presence in 60 countries with over 225,000 employees from 161
nationalities providing a strong foundation for growth. They also have a near shore presence
in 20 countries, where nearly four out of five employees are locals. HCL Tech's TCV new deal
wins in the September quarter stands at US$3,936 million. The IT major won 16 large deals,
with 10 in the services segment and six in software segment. Siemens AG selected HCL Tech
to modernise its IT landscape worldwide and power cloud-led digital transformation.

The company started to create wholly owned subsidiaries to cater specific geographic
regions from the year 1999. They had the widest service portfolio among Indian IT service
providers with each of its services having attained critical mass.

History of the company:

In the year of 2000 the company set up a dedicated offshore development centre in Chennai
for KLA-Tencor Corporation a supplier of process control and yield management solutions
for the semiconductor and related microelectronics industry. HCL Comnet the wholly owned
subsidiary company in association with its new partner Globeset Inc introduced net security
management solutions. The company launched the Nokia professional centre in New Delhi
second among the chain of centres across the country.

In the year 2001 the company entered into a strategic alliance with Nasdaq-listed Vitesse
Semiconductor to develop software solutions for global networking markets. They also
entered into a strategic alliance with Toshiba Information Systems (Japan) Corporation to set
up a dedicated offshore software development centre for developing embedded software
for the Japanese company. HCL Comnet Systems & Services Ltd a fully owned subsidiary
company went into the business of Web-enabling applications through the launch of
demand-chain management solutions.

In the year 2003 BT Group UK's telecom service provider gave a contract worth of $160
million for BPO service operations. The company set up an exclusive centre in Noida for
executing the orders given by BT Group. The software business of HCL Infosystems Ltd was
transferred to the company. The company set up Insurance Solutions Center in Chennai.

In the year 2005 SEBI made a tie up with the company for market surveillance and the
company formed joint venture with NEC Japan. The company amalgamated their six wholly
owned subsidiaries namely DSL Software Ltd Shipara Technologies Ltd HCL Technologies
BPO Services Ltd HCL Technologies (Mumbai) Ltd Aquila Technologies Ltd and HCL Enterprise
Solutions (India) Ltd with the company.

In the year 2006 the company launched RoHS Compliance Management System for Medical
Device Users and entered $70 million outsourcing deal with Teradyne of US. HCL developed
Trusted ICT Infrastructure Platforms for BPO-ITE'S Segment and has linked pact with Canada
based electronics manufacturing services company Celestica Inc to jointly design and
manufacture electronic products for global original equipment manufacturers (OEMs).

In the year 2007 HCL Venture Capital Ltd a company incorporated in Bermuda and
downstream subsidiary of the company was merged with HCL Bermuda Ltd. Also HCL
Technologies (Mass) Inc. a company incorporated in United States of America and a down
stream subsidiary of the company was merged with HCL America Inc. During the year
2007-08 the company incorporated their wholly owned subsidiary viz. HCL Technologies
(Shanghai) Limited. Through this entity the company established its first sales and delivery
center in Shanghai with an initial investment of Rs. 2.77 crore.

In 2011, the company signed a strategic five year Application Support Transformation deal
with Deutsche Bank's Capital Markets arm. The service factory delivery model implemented
by HCL is expected to enhance productivity driven by transparent Service Level Agreements
(SLAs) and performance metrics.

On 17 November 2015 HCL Technologies announced that it had won an Application

Development and Maintenance contract from Deutsche Bank. Under the terms of
agreement, HCL will provide digital solutions systems integration product implementation
and design build and test new applications in addition to the ongoing application
maintenance and support services.
On 25 January 2016 HCL Technologies announced that it had won an IT infrastructure
services contract from Alstom a world leader in the supply of the most complete range of
systems equipment and services in the railway sector.

On 16 February 2016 HCL Technologies announced that it had won a significant IT

outsourcing contract from the Volvo Group one of the world's leading manufacturers of
commercial vehicles. Simultaneously HCL Tech announced the acquisition of Volvo's external
IT business adding 40 new customers from the Nordics and France to its portfolio further
enhancing its market leading position in these regions.

On 20 June 2017 HCL Technologies announced the launch of its Next Generation Research
Platform (NGRP) a pre-competitive drug-discovery ecosystem built with open standards.
This Platform will provide research scientists with a collaborative ecosystem greater
computational resource and the ability to mine research data to make more informed
scientific decisions while improving productivity by automating and eliminating manual
administrative tasks.

In February 2021 HCL signed a five-year Digital Workplace Services Agreement with Airbus.
HCL will establish a modernized digital workplace to enhance the user experience and
service quality for the majority of Airbus employees globally.

As on March 31, 2023, the Company had 122 subsidiaries and 6 associate companies.

Business segments:

HCLTech is structured as three business segments—IT and Business Services (ITBS),

Engineering and R&D Services (ERS) and Products and Platforms (HCLSoftware)

1. ITBS:

It is the most significant contributor to HCLTech’s overall revenue mix. In FY23, the
segment posted a revenue growth of 15.6% YoY in constant currency and an EBIT margin
of 16.6% driven by solid growth across all service lines.

ITBS comprises of

• Digital Business Services – This consists of consulting, application modernization

services, data and analytics.
 • Digital Foundation Services – This consists of digital workplace sevices, nextgen
network services, hybrid and multi-cloud services, cybersecurity & GRC, Unified Service
Management & Intelligent Operations services,

• Digital Process Operations – DPO helps clients adapt to the digital age by combining
our domain expertise, engineering capabilities and software stack. Also, the segment is
expanding automation, AI and machine learning capabilities.

• EdTech Business Services - EdTech Business Services is a new addition to the ITBS
segment, focusing on providing enterprise solutions for talent acquisition and mobility.

2. Engineering and R&D Services (ERS)

HCLTech’s Engineering and R&D Services (ERS) segment delivered a strong performance in
FY23, with revenue growth of 16.8% YoY in constant currency and an EBIT margin of 20.2%.
HCLTech ERS portfolio includes:

• Product engineering services – Helps to build scalable, complex, and new products
and systems, spanning the whole gamut of product life cycle management.

● Digital engineering services – help clients reimagine their businesses for the digital
era, covering all areas of digital transformation, including cloud and data
engineering, digital platforms, ecommerce, 5G services, AI and silicon platform
services, spec-to-part services and more.

● Operational technologies – helps in ensuring manufacturing resilience and enabling

efficient responses to supply chain issues and changing market demands by
modernizing infrastructure and processes.

3. HCLSoftware

HCLSoftware is a provider of innovative technology and domain-specific solutions within

niche segments that help drive customer efficiency and innovation. HCLSoftware in FY23,
posted a revenue growth of 1.8% in constant currency and maintaining a healthy EBIT
margin of 25.1%.

HCLSoftware addresses business opportunities across four key markets which are digital
transformation, data analytics and insights, AI and intelligent automation, enterprise
security.
Competition:

In the expansive arena of IT and consulting services, HCL Technologies encounters robust
competition from several prominent players, including but not limited to Capgemini,
Accenture, Infosys, Cognizant, IBM, Tata Consultancy Services (TCS), Deloitte, and SAP.

So, how does HCL stand out?

HCL’s higher exposure to Cloud, which comprises a larger share of non-discretionary spends,
offers a better resilience to its portfolio with higher demand for Cloud, Network, Security,
and Digital workplace services.

HCL has limited exposure to troubled BFSI clients, and recent large deal ramp ups in the BFSI
vertical led to strong segmental growth of 6.9% sequentially in constant currency, contrary
to weak growth at both TCS and Infosys lately. In conclusion, while HCL has not been
immune to earnings downgrades, the company is seen as better placed than its competitors
due to its limited exposure to troubled clients, higher exposure to Cloud, and strategic deal
wins.

Now let’s examine the strategic objectives set by HCL and how it plans on implementing
them:

● Leadership through differentiated services and products.

● Employer of choice in professional services across all our key geographies
● Preferred Digital partner for Global 2000 enterprises in chosen markets
● Weave ESG (Environmental, Social and Governance) goals into business strategy
● Deliver top quartile TSR (Total Shareholder Return) over the medium term

The company attains these strategic objectives by firstly encouraging its employees to
innovate and propose ideas for capturing novel opportunities, mitigating unforeseen risks,
and adapting to local conditions.

Secondly, to facilitate these strategic initiatives, a variety of enablement frameworks are in

place, spanning knowledge management, collaboration, and change management.
Thirdly, to identify disruptions early, prepare for them, and respond effectively, HCL
Technologies adopts a structured approach of scanning thousands of market signals,
pinpointing strategic risks, and transforming them into opportunities.

Fourthly, while benchmarking is not an end goal in itself, it serves as a means to achieve
strategic objectives. Through benchmarking, the company seeks to unearth best practices
and accomplishments worth adopting.

Lastly, in addition to internally aligning everyone and disseminating the message to

managers and employees, the company focuses on communicating its strategic objectives to
key external stakeholders, including investors, clients, partners, potential employees, and
the community.

Let us proceed by taking a look at HCL tech’s financials and how it has performed:

The revenues of HCL TECHNOLOGIES stood at Rs 1,028,180 m in FY23, which was up 18.6%
compared to Rs 867,220 m reported in FY22. HCL TECHNOLOGIES' revenue has grown from
Rs 613,800 m in FY19 to Rs 1,028,180 m in FY23. Over the past 5 years, the revenue of HCL
TECHNOLOGIES has grown at a CAGR of 13.8%. The net profit stood at Rs 148,450 m in FY23,
which was up 9.8% compared to Rs 135,230 m reported in FY22.

The IT services company's revenue from operations in the second quarter of the current
fiscal stood at ₹26,672 crore, registering a growth of 8.04 per cent, compared to ₹24,686
crore in the year-ago period.

The Chief Executive Officer and Managing Director of HCL Tech, C. Vijaykumar, remarked on
the company's achievements, highlighting a 1 percent quarter-over-quarter and 3.4 percent
year-over-year growth in revenue on a constant currency basis. Additionally, there was a
notable 154 basis points quarter-over-quarter improvement in operating margin,
accompanied by positive developments in cashflows. These outcomes, according to Mr.
Vijaykumar, signify the company's proficiency in executing strategies effectively within an
evolving business landscape, underscoring its commitment to operational efficiency.

With regards to segment-wise performance, HCL Tech's IT and business services revenue
stood at ₹19,898 crore in Q2FY24, up by 4.6 per cent year-on-year (YoY). While engineering
and R&D services revenue saw a single-digit growth of 2 per cent YoY to ₹4,271 crore, and
HCL Software revenue climbed by 3,6 per cent YoY.
The EBIT margin of IT and business services stood at 18.1 per cent, and that of engineering
and R&D services came in at 19.2 per cent in Q2FY24 versus 16.1 per cent and 16.8 per cent
respectively in the preceding June quarter.

Challenges faced by the IT industry and HCL:

The Indian IT industry is facing a challenging landscape this year due to weak global cues
and a decrease in discretionary spending by clients.

Leading IT companies, including HCL Technologies, TCS and Infosys reported a notable
decline in their employee numbers during the opening week of the Q2 earnings season. The
Q2 performance of these tech giants fell short of expectations due to global economic
factors such as high inflation, increased interest rates, reduced investment, and geopolitical
uncertainties, which have exacerbated concerns in the industry. Clients are delaying
non-critical initiatives and are prioritizing optimization efforts. This trend is likely to continue
for the foreseeable future.

In an interview with CNBC-TV18, C Vijayakumar, Chief executive officer and Managing

director of HCL Technologies, has said the firm's three verticals, including financial services,
manufacturing, and life sciences, which contribute 60 percent to the company's services
revenue have done extremely well amid macroeconomic challenges.

The CEO addressed challenges faced by the company in the tech and telecom verticals,
emphasizing that the encountered difficulties stemmed from ramp-downs during the
quarter that exceeded initial expectations. This unanticipated outcome has led to a notable
decline in performance within these verticals.

C. Vijayakumar stated that the most significant challenge for HCLTech was the impact of
COVID-19. He emphasized that the company delivers mission-critical services to clients,
including hospitals and utility providers, supporting front-line teams in devising solutions.
However, the pandemic disrupted these operations.

Pandemic and post pandemic scenario:

When COVID-19 came knocking, industry leaders all over the world found themselves both
shocked and, in many cases, slightly puzzled. The same was true for HCL Technologies. The
company saw topline decline in the June quarter of 2020 which was largely due to covid
impact.
While there was an obvious strain, their supply chain was already relatively resilient to the
effects of the pandemic. The company successfully procured nearly a hundred thousand
laptops and relevant equipment for their own staff as well as their customers. The company
has a multi-vendor, multi-channel, multi-solution approach to solving a lot of these
problems.

HCL had, even prior to COVID-19, a diverse portfolio of suppliers and partners, which
allowed them to quickly respond to supply and demand issues.

HCL technologies had invoked a business continuity plan, ensuring delivery to clients and
employee commitments, and risk management framework to minimize the impact of the
virus outbreak on employees and clients. The IT company said 76 percent of its Indian
employees and 92 percent of its staff abroad were enabled to work from home, and that it
has not witnessed any major disruption in operations.

The disruptive forces created by the coronavirus pandemic heightened the urgency to
leverage next generation technology. Pressure to adapt to the global pandemic quickly had
accelerated digital transformation journeys, creating innumerable opportunities. But in a
post-pandemic environment, demand will continue to climb, as global organizations strive to
increase business resilience, improve operational efficiency, enrich, and deepen customer
engagement, and innovate operating models.

Chief Technology Officer Kalyan Kumar said that post-pandemic, demand for data has
jumped significantly high and telecom operators are gradually moving towards cloud
computing systems to manage capacity in the network. To support employees during the
pandemic, the company made a policy exception and paid 100 per cent EPB irrespective of
performance. Post-pandemic, the company is reverting to the original policy.

Laying down a new growth plan, HCL Technologies plans to leverage its partnership with
hyper-scalers and follow a diversified product as well as service strategy to tap a larger
market, chairperson Roshni Nadar-Malhotra said.

Future Outlook:

HCL Technologies endeavors to sustain its momentum by leveraging global sales networks to
foster connections with local government and educational institutions, aiming to skill talent
with scale and predictability. The company also places a high priority on onboarding new
G2000 customers, aspiring to become their preferred partner for talent acquisition and
learning.
With accelerated growth in their existing clients and partnerships with hyperscalers, their 2X
market CAGR growth across cloud services is being fueled. Investments have been made in
new frontier geographies, and there is an anticipation of accelerated growth across these
areas.