HCL Technologies Ltd
NSE:HCLTECH
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1 303.55
1 898.4
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
HCL Technologies Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to the HCL Technologies Limited Q3 FY '23 Earnings Conference Call. [Operator Instructions]
I now hand the conference over to Mr. Sanjay Mendiratta, Head, Investor Relations. Thank you, and over to you, sir.
Thank you, Aman. Good morning, and good evening, everyone. A very warm welcome to HCL Tech's Q3 Fiscal '23 Earnings Call. A very happy new year to all of you. We have with us Mr. C. Vijay Kumar, CEO and Managing Director, HCL Tech; Mr. Prateek Aggarwal, Chief Financial Officer; along with the broader leadership team to discuss the performance of the company during the quarter, followed by the Q&A.
In the course of this call, certain statements that will be made are forward looking, which involve a number of risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from those in such forward-looking statements. All forward-looking statements made herein are based on information presently available to the management, and the company does not undertake to update any forward-looking statements that may be made in the course of this call. In this regard, please do review the safe harbor statements in the formal investor release document and all the factors that can cause the difference.
Over to you, CVK, and thanks.
Thank you, Sanjay. Good evening, everyone. Thank you for joining us for HCL Tech's Q3 FY '24 Earnings Announcement. Very happy new year to all of you from the entire HCL Tech family. Now to our results for the quarter. I'm very happy to share that we have delivered strong performance this quarter across all key metrics: revenue growth, margin expansion, booking growth and people metrics. As you would have seen, our revenues grew 5% in constant currency sequentially and 13.1% constant currency year-on-year.
The growth was attributed to a strong momentum in the HCL software business as well as our momentum in our services business. Our services business grew 15.4% year-on-year and 2.2% sequentially in constant currency. We posted an improved EBIT of 19.6%, driven by improvements in our services business and seasonal gains due to the peak performance in the software business.
Overall, we are continuing to see demand on themes like IT operating model transformation, cloud adoption. Both of these are helping clients accelerate their digital transformation journey. We continue to see great potential for vendor consolidation, cost optimization and large integrated opportunities in the near to medium term. And these opportunities have really contributed significantly to the bookings that we delivered this quarter.
We also enjoy a unique position as the only IT service provider globally to be rated as a leader in all 6 Gartner IT Services Magic Quadrants. This, when combined with the strong propositions and people skills, it's reflected in a strong growth over the last many quarters and our future outlook.
This is also a big acknowledgment of the effort HCL Tech had invested over the last few years to address every need of our clients. It tells the market very clearly that HCL Tech has the 360-degree propositions to address the IT services needs of Global 2000 clients.
Today, be it clients sourcing advisers or analysts acknowledge what we can bring to the table as a total package for digital transformation of our clients or employee value chains, be it cloud adoption, application or data modernization or digital engineering and digital workplace needs. Such an achievement is well aligned to our first of our strategic objectives, which is leadership through differentiated services and products.
In terms of segmental vertical and geography performance, our HCL Software business delivered an outstanding performance, growing 30.5% quarter-on-quarter in constant currency. HCL Software business scaled up impressively this quarter and has built good momentum in new type of deals with 26 new software-as-a-service deals.
From a services perspective, our ERS business led the pack this quarter with 2.5% sequential growth in constant currency, followed by our IT and business services at 2.1% sequential growth again in constant currency. This growth came up despite furloughs that were higher than anticipated at the start of the quarter and higher than what we saw in the previous year.
HCL Software signed 7 new clients across Fortune 500, Global 500 and Global 2000 clients in the last quarter. You may be aware that more than 25% of the Global 2000 companies or HCL Software clients, and we see synergy benefits for our services business as we get more clients here.
HCL Software announced a multiyear partnership with the legendary Formula 1 team, Scuderia Ferrari. The deal with Ferrari sees HCL Software become a strategic partner to the historic racing team with a focus on supplying high-performance precision technology. The HCL Software logo will make its debut on Scuderia Ferrari racing cars.
This follows our partnership as an official digital transformation partner of MetLife, MetLife Stadium, New York Jets and New York Giants in the U.S. These are part of our brand transformation program that we initiated last quarter to take HCL Tech, the industry's best kept secret closer to our clients, partners, communities and employees.
Now to verticals and geographies, the geographic growth was once again led by Europe at 7.2% sequentially in constant currency, followed by Americas at 0.5% Q-o-Q in constant currency. Our top-performing verticals were Lifesciences and Healthcare, Manufacturing and Telecom and Media delivering sequential growth of 5.5%, 4.9% and 4.5% in constant currency, respectively.
In Q3, we also made good additions to our clientele. We added 3 in the $50 million category and 2 in the $20 million category on a Q-o-Q basis. As you would remember, another of our strategic objective is to be a preferred digital partner for Global 2000 enterprises in chosen markets. In line with that, a good number of clients we've grown to the next category or new additions to our client list belong to the G2000 category.
One of the highlights of the quarter is our booking performance. Our bookings increased 10% year-on-year on a total contract value basis and 2% on an annual contract value basis, with 17 large deals across services and products among the large 7 services wins, I want to call out a few. I also want to call out that the top 3 deals that we won this quarter gave us a TCV of close to $1 billion in this quarter.
Our U.S. headquartered Fortune 300 financial services firm selected HCL Tech to lead its global technology transformation program. This program includes modernization of clients' IT landscape by building and operating a hybrid cloud infrastructure platform in collaboration with AWS.
We also announced the ODP Corporation deal, ODP, a leading provider of products, services and technology solutions, selected HCL Tech as its primary IT partner. HCL Tech will manage end-to-end IT operations and enterprise-wide digital transformation to enable ODP's business strategy in its Office Depot, ODP business solutions and various business units.
We also announced a new deal, which we signed last quarter. We announced the deal today, Mattel, a leading global toy manufacturing company and owner of one of the strongest portfolios of children and family entertainment franchises in the world, selected HCL Tech to enable Mattel's future direction and product operating model, along with continued digital transformation journey. As the primary IT partner, HCL Tech will drive transformation across Mattel's global technology landscape, cutting across applications, infrastructure and infrastructure security domains.
These are some of the wins on the services side that sets us well for the future growth. On the software side of the book, we have 10 large wins healthy mix across the portfolio as well as some good wins on a subscription or a SaaS model. A global 50 automobile major has expanded its partnership with HCL Software to support its dealer portal and parts provisioning in North America, while enabling a secure environment to guard against potential cybersecurity threats.
A Fortune 200 company has selected HCL Software to provide a modern and seamless digital experience to its customers and business partners. Our Fortune 500 hospitality company has selected HCL Software to enable multiple business functions, including HR employee training as well as customer-facing programs as a part of its growth strategy. Overall, our pipeline continues to remain healthy, well distributed across large and medium-sized deals.
In terms of people metrics, we are making good progress to become an employer of choice and professional services across all key geographies. Our headcount ramp-up continues. We had 2,945 net new additions to our family in this quarter, and 5,800 freshers during the quarter were onboarded.
Our people ramp up plants be it freshers or near shore or new visitors are progressing in line with what we had announced as a medium-term plan during our Investor Day in May '22. We're starting to see moderating attrition and talent cost across the globe unlike last year where we saw an abnormal behavior on these metrics. I'm happy that we are making incremental progress towards hybrid operating model just as we had planned in a consistent and predictable manner.
Our model continues to be flexible to address the needs of all stakeholders without constraining the business objectives. As we mentioned in our medium-term objectives, weaving ESG into our business strategy is key to our success. We launched the HCL Tech Sustainability School and its first comprehensive climate literacy learning series for all 220,000-plus employees. This should help our employees to better understand our relationship with the planet and how we can make it a better place to live.
Looking ahead, we believe there is a near-term impact to a few industries, specifically technology industry clients as they optimize while they will end up as great growth opportunities in the medium term with the right propositions, in this context, our propositions, global delivery, talent position and the new capabilities will continue to give us an edge in the mid- to long term.
Q4 will be a seasonally weak quarter as our P&P performance would -- peaks in Q3 with renewals and new deal signings. Looking ahead, we remain positive of our medium-term growth of confidence generated by a good booking and pipeline across every segment. I have no doubt that if we achieve the 4 strategic objectives and the progress we have made towards them, the fifth one to deliver top quarter TSR over the medium term should logically follow.
Once again, I wish you all a great year ahead. With that, I will hand over to Prateek to provide more details on our financials. Over to you, Prateek.
Thank you, CVK. Happy New Year to everybody on the call. To give you some quick wrap-up of the growth, and then I'll get into the -- how the EBIT has moved, et cetera.
Year-on-year, in constant currency, we grew 13.1%. Our services grew 15.4%. And on a sequential basis, in constant currency, we grew 5%, led by software, growing at 30% plus. And services also reported a robust 2.2% sequentially in a seasonally soft quarter. During the quarter, we also crossed significant milestones in terms of profits, INR 5,000 crores in EBIT and INR 4,000 crores in net income.
So the EBITDA margin came in at 23.9% and EBIT at 19.6%, which is a healthy growth of 165 basis points Q-on-Q and 57 basis points year-on-year. Our return on invested capital continues to improve. At a company level, we hit close to 30%. And services came in at 37.4% as compared to 36-point something last quarter.
Moving on to EBIT walk from last quarter to this one. We gave our second phase of increments this quarter for the middle management, and that is an impact of 70 basis points. At an overall level, EBIT has improved 165 basis points, out of which 155 -- 157 basis points has been contributed by HCL Software, being -- most of the revenue flows down the -- extra seasonal revenue flows down to the EBIT, as you know.
Services margin improved by 8 to 10 basis points after absorbing the salary increment of 70 bps that I talked about. Furloughs and holiday season also impacted by about 60 basis points. And our margin improvement initiatives have been yielding results last quarter and this quarter as well. This quarter, we gained 40 basis points through pyramid optimization and deployment of -- and billing of freshers as well as 30 basis points on top by realization improvements and other efficiencies.
And ForEx gain was another 70 basis points as well. So that's how the 19.6 got delivered, large portion coming from software, as I said. Guidance, we gave 3 data points on guidance. We have narrowed all 3 of them. So the revenue guidance at overall company level, we are at 13.5% to 14%, which is the same as what we had indicated at our U.S. Investor Day. So it's in line with that. All the 3 narrowing of the range is in line with that.
Services is now at 16% to 16.5%. And margin guidance is at 18% to 18.5%. It was a good quarter for cash generation as well and cash conversion ratios. Overall, DSO, including the unbilled revenue current is flattish Q-on-Q. But you will notice that our unbilled has reduced significantly in this quarter and over the last 2 quarters. And as we have built faster and which will -- which should help improve the collections in Q4 because what we have built already by December end will get collected sometime in February.
Cash generation came in at last 12 months OCF, operating cash flow was at [ $2,041 ] million and free cash flow at [ $1,823 ] million, $1.8 million, both being OCF being 111% of net income and free cash flow being virtually equal to the net income.
Our balance sheet remains strong with gross cash at $2.5 billion and net cash at close to $2 billion, $1.95 billion to be precise. For shareholders, the last 12 months diluted EPS increased to INR 53.36 which is up 4.8% quarter-on-quarter and 13.1% year-on-year without the one-timers in O&D. So we are taking the tougher compare there. And as per our continuing steady practice of quarterly dividend, we are -- the Board declared INR 10 for the quarter -- INR 10 per share as the dividend for the quarter. The record date of the same is 20th January, and payment date will be 1st February.
With that, I hand it back to the operator for Q&A.
[Operator Instructions]
First question is the line of Ravi Menon from Macquarie..
Gentlemen, congratulations. Good quarter. HCL Software product growth is even stronger than what we saw last year. And I thought last year, we thought that was exceptional. So are you confident that you'll now see this segment be stable to growing from here on, except for the usual strong Q3 seasonality?
Yes. So yes, we had a good growth, and our expectation is the trajectory will continue. But however, it is early days for us to really provide any concrete guidance. We've put several foundational blocks in place, and they seem to be working in the right direction. But this is not a trend yet. So let's -- we would be a little cautious before calling out a trend. We will see a few more quarters before seeing a trend.
Any -- particularly large deals in this that we might want to be aware of -- would be difficult to repeat?
Are you talking specifically to the software business?
Yes, specifically to software.
Yes. Software, we had 10 deals which we consider as large deals in software. And I think in a seasonally strong quarter, that's -- it's a little more than what we would have expected, a number of customers increase their consumption, some new clients got added as we called out some of the -- I mean, 3 or 4 new top logos got added who are going to consume the product for the first time.
So it's more broad-based. It's not because of one big deal or anything like that.
Perfect. And Financial Services had a decline this quarter, CVK, you said in December at the investor meeting New York that you were seeing higher flows and Financial Services. So will this bounce back next quarter? And also Retail and high tech, that is also a little weakened here, was it to furloughs of due to customers being in distress? And should we think there are some projects being put on hold or even being canceled in these other verticals?
Okay. Let me take it one by one. Financial Services is largely due to furloughs. I think we took the biggest hit in furloughs in Financial Services. So I see good growth coming back in Financial Services. And this also is going to be enabled by 2 large deals, 1 we had announced last quarter, one more -- $0.5 billion-plus deal, which we signed in this quarter, both are financial services. So I think we feel pretty confident of a very healthy growth in financial services as we move forward. And it also gives us good visibility of financial services for the next financial year.
Coming to retail CPG, it's really due to certain clients who are stressed, which had an impact. And that's kind of a little bit continuing, which is causing the ramp-downs in these clients -- in this client, Tech and Services, as I called out, I think our concern really came from -- we did not see a furlough kind of impact in Tech and Services in the past. But this year, we did see especially some large techs trying to kind of optimize their spend for the year. So we saw -- we took some hits in some big clients. That's why it's flattish from a quarter-on-quarter perspective.
I see a good mix of opportunities in Tech. While they are being a little bit more frugal about what they're spending on, but there is also an increased propensity to offshore. In fact, a couple of large big techs, which had a 50-50 ratio for on-site offshore. They are -- they're significantly moving to a much higher offshore adoption. And there is also one vendor consolidation deal, which we signed this quarter where there are 3 vendors who are going to take the lion's share of business.
So I think these trends that we have seen will help us stabilize and grow the takeaway vertical. The year-on-year growth is still very, very strong, and we expect to continue growing here.
One last question, if I may. Margins for IT services, it's still 100 basis points below the pre-COVID 3Q [indiscernible] level 13.8%. So with the attrition now starting to come off, do you think we can get back to those margin levels for IT services? Or are there any structural challenges that we should be aware of?
I'll request Prateek to respond.
I think that is the intent we said in our -- I mean at the company level, we said we do want to get back to the pre-COVID levels the comfort band of 19% to 20% that we've had over a long period of time, 4, 5-plus years. So that is the intent and aspiration and we are all working towards that.
And if you see this quarter, while the services margin is only 10 basis points up. But we have taken the impact of salary increases, as Prateek called out earlier. We have taken an impact due to the furloughs. And so then even then ForEx has benefited. But still, I think on both pressure adoption and all the operational improvements, we've got a 60, 70 basis points kind of benefit.
70.
70 basis points benefit. So services margins are improving and we will continue to see that kind of trajectory as we move forward.
[Operator Instructions]
The next question is from the line of Gaurav Rateria from Morgan Stanley.
Congrats on good execution. So 2 questions. Firstly, what's been happening on the top 10, top 20 accounts, if I look at that as a percentage of revenues, it's declined not just in this quarter but actually for last several quarters. So any particular phenomenon that is going on the top 10, top 20 accounts?
Yes. So there's a technical reason. I think it's largely because some of the revenue, which was getting accounted under IBM due to the revenue which was coming through the transfer of contracts that has now come into our books. So basically, there's one continuing factor which keeps reducing, that's one. And ForEx is also another season. I think these are the 2, I think. Otherwise, there are normal client movements up and down, but quite healthy growth. In fact, we see our top client categories grow very well. If you see that, I think top 20 has grown faster than the company services growth rate.
Got it. Secondly, how is your portfolio growth skewed towards Europe, both in terms of your order booking as well as in terms of your pipeline. Just trying to understand that the concerns on macro actually is more weight towards Europe. So if macro were to deteriorate, how much of risk that may be from your orders or the pipeline perspective?
So I think we did not say that our booking is skewed towards Europe. Our booking is a lot more skewed towards U.S. North America. So that's one. Now the second aspect is Europe had a pretty strong growth this quarter, followed by a previous quarter, which was also good. This is really coming from execution of one deal, which we had won some time back and that too in the Telecom vertical. So that is one reason. And there were also some projects where we had certain assets that were involved. So some of the supply chain easing. So they were planned to be delivered this quarter.
So these 2 elements helped almost a significant increase in the Telecom business in Europe, and that caused this big uptick. But you will see that our overall Telecom business has not -- overall Telecom business is not showing the same type of growth because we had some significant reductions in one large telecom account, which kind of neutralize that.
So now in terms of macros, our booking has been very strong in the U.S. in the last 2 quarters. And as I had mentioned earlier, the decision-making delays are visible in Europe. So that should kind of maybe moderate Europe for some time. However, the pipeline in Europe is still very good. Some of the deals which have been delayed for some time, we expect conversions in this quarter or even early next quarter. So I think we will see Q2, Q3 next year, we will see a continued traction. There may be a little softness in the interim.
Got it. Last question, CVK, on the bookings front you last time gave outlook that you expect very good bookings in December quarter, and that's how it translated into. Any kind of visibility that you might be able to provide for March quarter bookings, if possible?
It's difficult to call that out. But I do feel confident from -- on a year-on-year basis, we are probably up 13%, I think YTD, 13% up from a TCV perspective, I'm hoping to maintain that, but it's difficult to -- I mean, there can be always spikes, right, some things which we expect to happen in March could happen in April. So it's difficult to commit to a number. But the pipeline is good. And in fact, the number of deals which are coming into my unqualified pipeline, that is the deals which are coming in, where we have not yet qualified for the shortlist. There is a very strong traction there.
And I think that will kind of compensate for some kind of softness in the discretionary spend. So that's why overall, whether it is vendor consolidation or cost takeout kind of deals and cloud adoption. I think we are starting to see large transactions in cloud adoption. This is driven -- I mean, Financial Services sector has not kind of migrated a lot of workloads to cloud. And I think we are seeing -- starting to see a good traction around that.
So all of this is giving us confidence that the pipeline and the orders -- the type of deals that we are winning and the market share we are gaining, all of them is giving us some level of assurance that bookings will continue to be good, and then that will eventually translate to revenues.
I think, Gaurav, if I may just add, if you see our last 5 or even 6 quarters, it's been very steady sort of numbers between [ 2 billion to 2.5 billion ] in all of these quarters. So I think -- and as you know very well, these are all new bookings, new incremental booking net wins. There is no renewal in that. I think the steadiness is what I would like to call out in addition, which I think is a good way to keep the clock ticking.
[Operator Instructions]
The next question is from the line of Manik Taneja from Axis Capital.
I think I just wanted to pick your brains around the aspiration to get back to that 19% to 20% EBIT margins that you suggested during the U.S. Analyst Day. If you could help us understand how are you seeing the situation evolve from a [indiscernible] standpoint going into next year? And if you could also call out the different levers that you think will lead to your advantage in terms of that margin improvement over the foreseeable future.
Manik, there are 2 buckets I would delve into. One is the bigger things which are sort of translating into revenue and EBIT every quarter bit by bit, including this quarter and the previous quarter. And then there is a long list of all the other metrics, right? So the first one is our constant hiring of -- if you take the last 12 months, we are at around 30,000, those freshers coming in at a steady clip, not bunched up in one quarter, for example. And they've been trained and deployed on projects and start to build and the time to build improvements that we have been making progressively is the first lever end. It is basically quarter after quarter, year after year.
As we keep building that layer, it is a layered strategy, if you like, and that really forms the bedrock the bottom of the pyramid over 3, 4 years, and that is what we have been doing, and that is starting to pay off. The second one is obviously utilization of not only the freshers but also the laterals that we have, our entire workforce, really, right? And that utilization came under stress due to multiple reasons. One is the supply chain tightness.
The second is the very heightened attrition because when you have that much of attrition you are forced to keep a few extra people to backfill that, right? So as our attrition is moderating, quarterly annualized attrition is significantly come down over the last 2 quarters actually. Last 12 months doesn't show that, to be honest.
But in QAA terms, quarterly annualized attrition that has come down quite a bit, and that gives us the levers to reduce the unbilled people on the projects and so on and so forth. So utilization to my mind, is one of our biggest levers continuing. And then, of course, all the offshoring of the work, nearshoring of the work and improvements in the nearshore locations that have started expanding, and we are optimizing them.
All those things will play into it and I mean, whatever you may say about the environment, but we continue to see improvement in our billing realizations as well. So -- last quarter was 1%. This quarter, it's the 30 bps that I called out. Those are continuing, and as more and more deals of the last 12 months become more percentage of the total, that will keep on improving, I believe.
So those 3, 4 things are the biggest levers, and then there is all the rest of it, which includes automation and all the optimizations that we do, which obviously need to take care, first of the salary increments and then deliver higher EBIT and all the other metrics thereafter.
Sure. I appreciate the detailed response. And one last clarifying question with regards to the typical seasonality that we see around the services business between third quarter and fourth quarter. Typically, the fourth quarter tends to be higher in terms of sequential growth. Do you expect that trend to sustain in FY '23, given the current [indiscernible] backdrop?
You're talking about the Services business?
Q4, yes, that's correct.
So yes, I mean, there is some bit of catch up that a lot of the teams do during the last quarter. So it does tend to be a little distinct. But that is all baked into the guidance that we've given. So 16 to 16.5 kind of captures that quite adequately.
Next question is from the line of Sandeep Shah from Equirus Securities.
CVK, just wanted to understand within the deal TCV, which has been healthier for us. Is there any major change in terms of proportion of deal wins which are cost takeout, vendor consolidation led deals versus the discretionary transformational digital-led deals? And will this trend continue and the proportion may keep increasing, which may give us a confidence that FY '24 could be, again, a healthy year, especially in our Services business?
Yes. So Sandeep, in fact, the 3 large deals in this quarter, none of them are really driven by cost takeout. One is really realigning a product operating model. And right now, the client is already outsourced in an onshore-offshore model. So it's really not a cost-led deal. It's really a transformation deal, where we will lead with the changes in the overall IT operating model, right? That's number 1.
The number 2 is again a vendor consolidation opportunity, and it's really not so much driven by cost. The third deal is again really transitioning from vendors or service providers, who are struggling or who are not looked at the clients as futuristic, right? So these were the opportunities that we won.
Now the cost takeout deals, we are seeing a lot of them come into our unqualified pipeline at this point in time. So only when we get shortlisted into 3 or 4 kind of shortlisted vendors, then we add it to the qualified pipeline. I see them coming into the pipeline in this quarter and next quarter, and they will really result in some kind of bookings in Q2, Q3 of next year.
Okay. Okay. And just a last question. In terms of do you witness any slowness in terms of the cloud adoption or digital adoption for clients entering into CY '23 because that could be what has been implied from some of the hyperscalers where they see the last 2 years has been very great in terms of cloud migration, which can normalize going forward now?
No. I think -- see, there is this whole hybrid operating model, which was driven by our remote operating model, which was driven by COVID. I think that definitely gave a huge pipe to cloud consumption and -- but that is just only one leg of opportunity and that was really led by more consumption and not much of a transformative services like modernizing applications or data and things like that.
Now as I mentioned even earlier and even during the Analyst Day, a lot of big customers have signed up for sizable capacity with the hyperscalers, and these are all just booking numbers for the hyperscalers. So the customer wants to also make the best use of the booking commitments they have given and the hyperscalers are also encouraging them to accelerate migration.
So I think that's creating a good opportunity pipeline for us. I see it only accelerating because big companies with a committed spend on cloud providers, they need to really leverage the capacity that they have contracted. So I see more and more urgency to really drive this. However, it is still not -- lift and shift is not very high. Now people are -- unless they have a very aging infrastructure, so they kind of look at it as an easy solution to do a lift and shift and they can do a modernization and optimization later. But most large clients are looking at application modernization and rearchitecting the landscape to perform financially in an optimal manner on the cloud environment. So I see that trend continuing and I see it only accelerate.
The next question is from the line of Surendra Goyal from Citigroup.
Yes. CVK, any early thoughts on IT budgets, timing, direction what are your client conversations suggesting?
See, Surendra, it is early days to get a sense of the budget. But what I can -- see, there are 2 things, right? One is the discretionary spend. And I think that -- I don't think anybody has a good grip on what is the level of moderation that can happen in discretionary spend. But what we saw in the last quarter was wherever the projects were not critical, clients had kind of deprioritized that.
But a lot of work that we are doing in financial services, for example, we don't see clients kind of rushing to reduce anything. I think they are all continuing with the digital transformation program. So I think that's one aspect, which is a little more to go into this year to realize what the impact will be. However, a lot of deals are going to come out of the current spend customers are doing, either vendor consolidation or cost optimization. So I think that's not going to be driven by what budgets they have. It's really close to $115 billion worth of vendor consolidation opportunities are expected in the next 2.5 years. I think that's where we're going to get a good outcome for ourselves.
Sure. And just one more follow-up. I think Prateek did talk about realization improvement. So I just wanted to understand about realizations for the deals which have been signed in the current quarter because obviously, the realizations you are seeing today are from deals which were signed a while back. Has there been any change in direction from that perspective over the last few quarters?
No, Surendra. Like I think we discussed maybe in the last call -- we made a definitive change in our rate cards somewhere January last year. So basically, all deals signed since then have been at the better rates, and there has been no change in that -- in this quarter or the previous quarter.
And that includes the vendor consolidation cost takeout kind of deals, right?
Yes. Like CVK said, we've not had too many of them in now.
I mean, the cost takeout -- Surendra, at least this quarter is driven by 3 deals, which has nothing to do with cost takeouts.
Sorry.
Go ahead.
So just one last point on software. Obviously, you had a great quarter. And I don't want any numbers, but would you be comfortable to say that it's a growth business going into next year?
So Surendra, as I said, I mean -- 2 data points really does not constitute a trend. We'll have to wait for some more data points before we make that conclusion. So I would leave it there.
The next question is from the line of Girish Pai from Nirmal Bang Institutional Equities.
The ACV number for the quarter on a year-on-year basis grew by just 2% versus I think in the first half, it grew by approximately 20%. So how should one read into the slowing number? Is it because the tenure of the deals you won in the quarter are they larger?
Yes, yes. So I think the large deals are slightly longer tenure. And a couple of them are 5 years, one of them is -- one part of it is 8 years, the rest of the part is 5 years. So I think that has a skew. But [ Nirmal ], one thing, if you have to look at our YTD booking and you were to do ACV growth -- it's Girish -- So the ACV growth is 13% on a YTD basis. So that's a pretty strong growth from an ACV perspective. This quarter, maybe the mix of deals was a little different, so ACV was soft.
Do you see the mix of deals continuing the way you saw in 3Q? I mean will this mix continue into the next few quarters?
Difficult to call. I mean, deals come in all kinds of shapes and forms and tenures. We feel there is reasonable market opportunity to at least create a 10% ACV increase. So I'll leave it there. I mean it can always -- I mean, what is not happening in Q4 could happen in Q1. But on a rolling 12-month basis, I think that would be a good expectation and goal for us to [ go after ].
Yes. If I may squeeze in one last question. The third-party hardware and software that you've kind of incurred in the cost part. Is it -- do we see a situation where customers are pushing more of this on the vendors unlike, say, 12 months back? Is that something -- is that a phenomenon that you're seeing amongst customers?
No, Girish. I don't see any specific phenomenon, but I think what's happening is supply chains were very tight. And I mean, they started some of this hardware delivery and all started getting a little bit easier in the maybe September, October time frame. So that kind of helped us to kind of finish some of the project deliverables, which was all planned. It was expected, either it was in Q2 or Q3. So it really happened in Q3.
The next question is from the line of Abhishek Kumar from JM Financial.
I just wondered your view on ER&D services given the fact that you generally tend to be more towards the development side and also high tech is seeing some kind of pressure. What's our view on ER&D over the next few quarters?
Yes. I have Vijay Guntur, who's President of our Engineering and R&D Services. I would request him to provide a commentary.
Abhishek, you're right. Some of the decisions on product lines and the product discontinuing are impacting. But we have a large set of our business, which is about sustaining existing products and also transforming. So that, in a way, is giving us a cushion to take care of some of the headwinds that we see. And this is not across all of our engineering services business. In the tech space, we see a little more, whereas in our heavy business, we don't see this kind of a trend.
Sure. Just for my understanding, how would -- I mean, what percentage of ER&D roughly would be technology. Is it like the largest one or it's not very large?
It will be a little over 11%. [indiscernible] total year.
The next question is from the line of Komal Ladha from YellowJersey Investment Advisors.
Hello...
We can hear you. Please go ahead.
Yes. I wanted to ask, like, do you face any major challenges with employee costs as startups are having at higher packages?
No, I think it's -- that was the issue 2 quarters ago and even last quarter. But this quarter, we are already seeing a little bit of moderation in the talent cost and attrition and all that attrition came down significantly. So the situation has improved quite significantly in this quarter.
And what kind of fresher hirings are you looking at in the coming quarters?
I would request Ram, our HR Head.
Our fresher numbers, whatever we have planned for this year, we we'll be getting pretty close to the planned numbers. There will be some slight moderation as the attrition has started dropping quite significantly. We'll be making some small moderation to that. Otherwise, we'll continue with the plans that we have made for the year.
Next question is from the line of [indiscernible] Sara from Tusk Investments.
I wanted to know on the ACV for the software wins. So could you shed some light on the size of the deals with Ferrari? And any indication you'd like to give there on general size, tenure for the new deals you're winning?
We don't give deal-specific numbers on both the services and software business. Wherever we could call out we had permissions we have already given an indication -- but usually, the software ticket sizes are small. It could be anywhere from $100,000 to maybe $10 million kind of ticket sizes. That's what we typically see.
Ladies and gentlemen, that would be our last question for today. I now hand the conference over to Mr. C. VijayaKumar for closing comments. Thank you, and over to you, sir.
Yes. So overall, we've had a fabulous quarter on all dimensions. Revenue growth improving margins, strong booking performance and very good people metrics. We continue to remain positive about the overall tax spend of the clients that can always be 1 or 2 quarters where there can be some moderation. But our strength of our propositions, which is really very well balanced and the very impressive recognitions that we have from analysts and the very satisfied clients that we have.
We are very confident to weather any economic storm with a mix of vendor consolidation opportunities and continuing to double down on the cloud adoption and our digital engineering strategies. So overall, I remain positive about the outlook for the future. And thank you for joining us, and have a great evening.
Thank you all.
Thank you very much. Ladies and gentlemen, on behalf of HCL Technologies Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines. Thank you.