Ladies and gentlemen, good day, and welcome to the HCL Technologies Limited Q1 FY25 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nitin Mohta, Head, Investor Relations. Thank you, and over to you, sir.
Thank you, Godwin. Good morning and good evening, everyone. A very warm welcome to HCLTech's Quarter 1 FY 2025 earnings call. We have with us Mr. C. Vijayakumar, CEO and Managing Director, HCLTech, Mr. Prateek Aggarwal, Chief Financial Officer, along with the broader leadership team, to discuss the performance of the company during the quarter, followed by 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 statement that may be made in the course of this call.
In this regard, please do review the safe harbor statement in the formal investor release document and all the factors that can cause a difference. Over to you, CVK.
Thank you, Nitin. Good evening, good morning, and good afternoon, everyone. Thank you for joining us today for our Q1 earnings call. I will directly get into our business performance for the quarter. As we had communicated seasonally, Q1 has always been a soft quarter for HCLTech. It's still industry-leading YOY growth, as it increased 5.6% on a year-on-year basis in constant currency, though our revenues declined 1.6% sequentially. Again, this was better than how we had expected this quarter to pan out when we met last. We had called out the key factors that drove this during the last call. Operating margins clocked in at 17.1%, a decrease of 50 basis points compared to the last quarter, and an increase of 13 basis points compared to the last year, same quarter.
In terms of segmental performance, our services business declined 1.9% sequentially, but grew 5.8% year-on-year in constant currency. Our IT and Business Services grew 5.3% year-on-year, declined 1.5% sequentially in constant currency. Our Engineering and R&D Services grew 8.4% year-on-year, but declined 3.5% sequentially in constant currency. The decline in engineering services were primarily in the manufacturing and MedTech vertical segments. HCLSoftware grew 3.5% year-on-year, as well as 0.4% sequentially in constant currency. Our HCLSoftware business continued to progress in the right direction, with annual recurring revenue at $1.01 billion. Now, coming to the verticals and geographies.
In terms of geographies, on a year-on-year basis, Europe grew 3%, Americas grew 8%, but rest of the world declined at 3.6% in constant currency. On a year-on-year basis, telecom and media and retail and CPG vertical segments fared well, growing at 69.2% and 9.7% respectively. Manufacturing grew 3.5% year-on-year in constant currency, enabled by the ASAP acquisition, which we did last year. Life sciences and healthcare segments declined 4.1% year-on-year in constant currency, due to completion of projects last year and the softness that I had called out in the MedTech segment. Bookings during the quarter, we had a TCV of $1.96 billion, approximately $2 billion, with a good mix of small deals and large deals.
We've called out all the large deal wins in our investor release, and we've also called out a number of opportunities that we have won in the space of GenAI in our investor release. From a people perspective, our overall people count at the end of the quarter was 219,401, a sequential reduction of 3.6%, which is largely attributed to the State Street JV exit. Our attrition continues to update on an LTM basis. Our IT services voluntary attrition now stands at 12.8%, one of the lowest in the industry. Expanding on our nearshore strategy, this year, we also opened... This quarter, we opened a center in Patna, in Bihar, continuing to expand our nearshore strategy.
In terms of business trends and GenAI, we continue to see a lot of AI and GenAI-related opportunities. We had launched HCLTech AI Force, a generative AI and automation platform, couple of months ago, and now we've launched another suite of products, HCLTech Enterprise AI Foundry, to simplify and scale enterprise AI journeys.... Talking about client programs, there are multiple ongoing engagements where we are working with clients to deliver real value. Specifically, in terms of AI-led wins, the following are worth a mention. A global technology major selected HCLTech for implementing a GenAI-based solution for gaming review analysis that automated data collection, sentiment analysis, and operational automation, resulting in significant workload reduction and a 119% increase in game reviews. They also selected us to deploy GenAI to transform their content lifecycle management and the processes.
HCLTech will help the client to automate its content processing with intelligent future features such as persona filters. A Europe-based financial services major has partnered with us to develop and manage its next gen, low latency electronic platform and compliance analytics platform, leveraging GenAI. A US-based insurance provider selected HCLTech to transform its contact center and back-office operations for claims management, leveraging GenAI. HCLTech's AI Force digital colleague suite of products will help the client optimize workflows, boost operational flexibility, and enhance efficiency, accuracy, and overall service quality in managing healthcare claims. Adoption of GenAI technologies are also expected to boost demand for cloud services and data standardization work. Recent implementations that we did demonstrate that trend. It delivers the business efficiency and operational excellence for clients who are seeking several modernization kind of objectives.
For a leading athletic shoe brand, we modernized their e-commerce platform to improve omni-channel consumer experiences, and that spurred their top-line growth. For a U.S. beauty retailer, we created a digital store of the future, digital shopping experience that's high-performing, visually appealing, immersive, and omni-channel. Both implementations involve migrating from legacy systems to next-gen platforms that enable innovation, reduce OpEx, and scale on demand. This should logically lead to the next stage of leveraging GenAI further. This GenAI momentum is driven by the attractiveness of a full-stack proposition, which delivers to the entirety of the enterprise, covering business processes, product applications, data, cognitive infrastructure, and the semiconductor design.
These full stack capabilities are key in the market right now, and our flagship offering of AI Force and AI Foundry, along with our global network of GenAI labs, are bringing them to life for our clients across the globe. We are, in fact, seeing unprecedented levels of activity in our AI labs, which provide strategic advisory services, hands-on engineering acceleration, and a unique idea to MVP experience designed to quickly prepare clients for scaled AI deployment. Our AI labs have curated 200+ MVPs for our clients till date. Fueling this activity is a solid investment in people, places, and partnerships. In terms of people, we have a target of training 50,000 people on GenAI and AI skills this fiscal. 33% of this target has already been achieved in this quarter alone.
Our focus on data, AI, GenAI, developer skilling across the stack with a special focus to create a cohort of data and AI principals. In terms of locations, this quarter we inaugurated an AI lab in New Jersey in the U.S. and a GenAI dedicated data center in Austin, Texas. These labs help clients quickly innovate, experiment, and prepare for scaled production deployment of AI and GenAI-enabled solutions. We've also recently announced a new collaboration to establish a GenAI COE based on IBM watsonx AI and Data Platform. In terms of partnership, our expansive ecosystem of partners continues to be a bedrock of growth in this market. We have strategic partnerships with all the leading hyperscalers, ISVs, and systems OEMs that keep us at the forefront of key innovation happening in this space. In our software business, too, similar acceleration is of course around GenAI.
Every major product in HCL's software portfolio has now been embedded and infused with GenAI capabilities, from business applications to total experience to intelligent operations, cybersecurity, and data analytics. Our investor release has got more details of the deals that we won, both on GenAI and other digital and traditional teams, which should give you a much broader view of the potential opportunities in front of us. Last quarter, we received several accolades, and happy to share that HCLTech has been included in Businessworld's India's Most Respected Companies 2024 list as number seven. HCLTech named Most Honored Company in India in annual Asia Executive Team Survey by the Institutional Investor Research.
HCLTech ranked number 1 in 21 categories in the technology, IT services, and software sector, and had a total of 27 top 3 rankings across Asia ex-Japan and rest of Asia ex-Mainland China survey tracks. I'm sure you know most of these details. I would like to thank you all for the continued support. These awards would not have come to our way without you and your industry peers acknowledging our work and commitment to strong corporate governance and investor relations. A sincere thank you to all our investors and analysts for their acknowledgments. From an ESG perspective, we also won 2 recognitions this quarter. The British Safety Council has recognized 5 of our campuses in India with the prestigious International Safety Award 2024.
We also won the Equinix APAC Social Governance Award and SAP Pinnacle Award in the Social Impact category for the HCLTech AquaSphere solution that helps enterprises achieve their water conservation goals. Looking ahead, with Q1 performance in line with our expectations, we will grow in Q2 with all verticals and geographies seeing a sequential growth except financial services. As you know, we shall have the planned impact of State Street divestiture on our revenues in Q2, and including that impact, we remain comfortable with our full year revenue and margin guidance as clients spend on GenAI and other emerging technologies. We expect to meet this guidance through strong operational execution that we've demonstrated over the last several years. With that, I will hand over to Prateek to provide more details on our financial performance. Over to you, Prateek.
Thank you, CVK. Good morning and good evening to all of you. Hope you are keeping well. So the Q1 FY25 overview, revenue stands at $3.36 billion, which is a decline of 1.6% sequentially, but growth of 5.6% year-on-year in constant currency terms. This quarter, it was led by the software segment, which was up 0.4% sequentially and 3.5% year-on-year in constant currency. ARR stands at $1.01 billion. Services came in at $3,041 million, so $3 billion roughly, which was down 1.9% sequentially, and up 5.8% year-on-year.
Within that, ITBS came in at $2.5 billion, down about 1.5 percentage points and up 5.3% year-on-year. And ERS R&D came down 3.5% sequentially and up 8.4% year-on-year. Our EBIT came in at $575 million, at 17.1%, which is down 50 basis points sequentially, but up 13 basis points year-on-year. Like CVK mentioned already, typically Q1 has that seasonality for us. Services margin is the one that drove the overall margins down on a sequential basis, 51 basis points, and up 43 basis points on a year-on-year basis.
Net income for the quarter is $496 million, which is at 14.7% in U.S. dollar terms, which is an increase of 3.4% sequentially and 15.3% year-on-year. Our other income, as you would have noticed, is higher, due to the divestment of the State Street BPO JV in this quarter. I would like to highlight one thing, which is a little unique in this quarter compared to most other quarters or years, is the divergence between the net income in dollar terms versus rupee terms, and that is driven by, you know, the accounting of the divestment of the State Street BPO JV.
What I am specifically referring to is the 15.2% net income in rupee terms in our Ind AS financial statements, which is a divergence of about 43 basis points. In decimal terms, it's 14.7 versus 15.2 vis-à-vis the IFRS, which is at 14.7. This is basically because of an accounting difference between how the recording of the initial investment in the entities that were divested got currency translated over the 12, 13 years of the life of the JV. And it's typically referred to as CTA, currency translation adjustment. So in the U.S. dollar P&L-...
There is about $9.8 million, which was a loss in the U.S. dollar PNL, but the same thing in the rupee PNL, the Indian PNL, there is actually a gain of INR 4.7 million, and therefore there is that 14.5 million difference. If you just translate the rupee PNL, it would be higher by $14.5 million on that account. Moving on to the normal EBIT margin walk. There's not much to see there. It's pretty straightforward. 50 basis points is the decrease at the company level, which is obviously caused by the drop in the services margin, which is at 51 basis points.
That is basically the drop in margin from the ERS segment, which is the drop in revenue has kind of percolated down to the margin, if you look at it that way. So that is really the reason for the drop sequentially Q-on-Q. The impact of annual productivity that has resulted in revenue decline has been offset by efficiencies in business. Along the way, we got some small exchange benefit of about 10 basis points as well. We continue to improve our return on invested capital, ROIC, due to continued focus on profitability and managing capital efficiency.
The last 12 months ROIC, you will see, is now at 42.8% for services, which is a handsome increase of 3.8-4.8% on a year-on-year basis. Software continues to be at 16.1% like last quarter. Therefore, the company as a whole, the last 12-month ROIC is at 34.6%, which is also an increase of 3.5 percentage points on a year-on-year basis. The guidance remains the same as what we had given you at the beginning of the year, last quarter, when we announced, and revenue guidance continues to be 3%-5%.
And like CVK mentioned, we are confident of seeing growth despite the 80 basis points impact at a company level from the State Street BPO revenues going away and which is about 90 basis points at a services level. We do expect to see growth in Q2 over Q1 both for total company and for services, where we continue to have that guidance band of 3%-5% and EBIT between 18%-19%. Our cash generation continues to be robust. Last 12 months, operating cash flow is at $2.7 billion, which is 9% increase year-on-year. And free cash flow is at $2.6 billion, which is an increase of 12% year-on-year.
And the respective conversion factors compared to net income are at respectively 139% for OCFs and 133% for free cash flow. Our balance sheet continues to strengthen. Gross cash at $3.26 billion now, and net cash just a shade below three billion at $2.985 billion. We succeeded to reduce our DSO by another day, including unbilled. It is now at 82 days versus 83 days last quarter. So that's an improvement of one day sequentially and an improvement of six days on a year-on-year basis, because it was at 88 in the same quarter last year.
For our shareholders, the diluted EPS for the last 12 months, therefore, comes in at INR 60.52, which is up 8.7% year-on-year. The board has declared a dividend at INR 12 per share for the quarter, interim dividend, which is in keeping with what we have been doing in the last, in the Q2 and Q3 of last year as well. We're maintaining the same run rate. The record date for that is going to be 23rd July, and the payment of the same shall be 1st of August for the shareholders. That brings our last 12 months payout to INR 54 per share, which is a ratio of 89% to the net income.
That's where I will pause, and our moderators back to you for the Q&A. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to withdraw yourself from the question queue, you may press star and two.... Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Vibhor Singhal from Nuvama Equities. Please go ahead.
Yeah, hi. Thanks for taking my question. So, if we just have the two questions. One, I think, this quarter, the decline, as we had already guided to, we were expecting a decline in revenues because of the project moving from on-site to offshore. But adjusting for that, how is the BFSI segment looking like? How is the growth overall in this segment in terms of the pickup in demand or, I mean, we've had a very strong BFSI segment performance last year. Do you expect that momentum to continue or maybe even get better, I mean, depending on how the market plays out?
A similar commentary, if I, if you could provide on manufacturing, if I missed that comment, what led to this, decline in the manufacturing vertical in this quarter, and how do we see it going forward?
Yeah. Thank you, Vibhor. Let me address the financial services question. We, apart from the one item that we had called out last quarter, the progress played out exactly as we had expected. And as you know, Q2 will have a little more impact because of the State Street divestiture. After that, we expect this to show some growth because the couple of wins that we've had, big wins that we've had in the quarter, was in financial services. They would start contributing to incremental revenues in Q3 and Q4.
Still the large outlook in financial services seems to be cost efficiency kind of driven programs, but a lot of them are not just straightforward cost efficiency, but it is led by a level of modernization and tech transformation. So that's what we are seeing in financial services. We're not seeing the general discretionary spend really picking up. It remains somewhat similar to what we saw in the last quarter. In manufacturing, first of all, addressing the Q1, we had talked about the two elements of the Q1 outlook. One was, of course, offshoring of a large program. The second one was a traditional year-on-year productivity. A lot of them, the contract year and the productivity kicks in in April. And this is a little more concentrated in the manufacturing vertical.
So that was one reason. Second, we saw, in fact, a significant weakness in the automotive segment, contrary to all the expectations, because, we see a lot of stress with the automotive firms, in Europe, and that has contributed to the second element. And the third, which is, it's mostly a BAU thing. Our assets revenue, if you see, has declined some $10 odd million, and, pretty much, all of that seems to have happened in the manufacturing vertical. Now, moving forward, as I mentioned, we see good growth in manufacturing, in the, in the second quarter. So we should continue to see good traction in manufacturing going forward.
Got it. So apart from these, these three things that you mentioned, the overall outlook in the manufacturing remains as it was, let's say, last year?
That's it.
Got it. Got it. That's really helpful. I just have one follow-up question for Prateek. Prateek, I think we would probably be taking the wage hike in due course of the year, either Q2 or Q3. You can probably shed some light on that as well as to when we are planning it. But given that we are at 17.1% margin in this quarter and the impact of the wage hike yet to come, are we expecting—I mean, what are the operating levers that you are looking at to be able to manage the margins in that 18%-19% band? I know Q3 will be a bump up because of the product business, but overall, do you, what are the other levers?
I mean, even, despite that seems to be a bit of a tall ask, what are you looking at in terms of the levers to achieve that number?
Thanks for that question, Vibhor. I think I don't want to speculate too much about the wage hike, timing and quantum, et cetera. Like, Ram mentioned, it is still a decision which is work in progress and, I mean, mentioned at the press conference, I don't know if you were listening in. So that is a work in progress, which we will decide during the quarter. But at an overall level, Vibhor, you know, there is a certain trajectory interquartile, quarter-wise, trajectory that we have had. If you look at the last couple of years, our Q1 is typically soft on the top line, which kind of translates to the bottom line a bit, as well. And then we have the-...
You know, Q2, which is a pick up and somewhere near the number for the full year, and so is the Q4. And Q3, like you rightly pointed out, is the peak. So Q1 is the sort of trough, Q3 is the peak, and the other two are somewhere. And that's what we would expect to play out, even in this year. I'll leave it there because the levers, there's a long list. We've talked about it enough time, and all those levers continue to be available and at play. I'll, I'll leave it there, Deepak.
Got it, got it. That was very helpful. So in a nutshell, we don't see any threat to our 18%-19% guidance, and we're comfortably placed to meet that number?
Our guidance continues to be 18%-19%.
Got it, sir. Got it. Thank you so much for taking my question, and I wish you all the best.
Thank you.
Thank you. The next question is from the line of Sudhir Guntupalli from Kotak Mahindra. Please go ahead.
Hi, Sudhir. Thanks for the question. So you mentioned that the performance during this quarter was better than initially anticipated. Just curious what has led to this? Was this driven by the faster velocity, shorter cycle deals which would have come through during the course of the quarter or something else?
It's difficult. It's a little bit contribution from a lot of things. It's not that we have hugely overperformed from our expectations. It is slightly above our expectations, and it's a lot of small things which added up. I wouldn't really call out any trend or anything like that.
Sir, and you seem to be confidently suggesting that all verticals and geographies will potentially grow in Q2 with just one exception. So are you suggesting that the demand situation has bottomed out and seeing a gradual improvement from here on?
Yeah, I mean, the only exception is financial services, as I called out. And from a demand situation perspective, our going-in assumption for the year was discretionary spend would be similar to the last year, and we maintain the same thing. I don't think the environment has changed in any meaningful way during the first quarter to kind of project any optimism. But of course, our forecast for Q2 is based on the deals that we won and the execution that is underway, and that's why we feel confident of growth, more broad-based growth in Q2.
Thanks, Sudhir. That's it from me. All the best.
Thank you.
Thank you. The next question is from the line of Ravi Menon from Macquarie. Please go ahead.
Thank you. Sudhir, just wanted to check about the manufacturing vertical performance unit. Last year, despite the productivity improvements, we've shown good growth. Even the year before that, you know, there has only been a slight decline, just about 1.5% quarter-over-quarter in CC terms. This year seems to be a lot more pronounced. Could you share some more color on what happened in the automotive sector? And is there any decline in the ASAP acquisitions revenue specifically, if you might share that?
Yeah. Ravi, I think you guessed it right. Our ASAP acquisition did not deliver to the way we expected in the first quarter. But we are very confident of the overall investment and the outlook in that segment. But I do believe the EV segment is going to undergo some stress due to various factors, especially in Germany. And we are... Even the ASAP acquisition, we expect the Q2 to be a good growth quarter.
If you are trying to compare it to last year and other years, usually there are lots of elements, but ASAP is one thing, you know, cost of $10 million, kind of an impact, from Q4 to Q1, and that's not something which we can very predictable manner, kind of, define year-on-year and things like that. Then, the productivity benefit, it's pretty much similar. It's a repetitive thing every year. But you won't—I mean, the growth can be influenced in one year because of a new deal ramp-up, and things like that. So it's very difficult to draw one-to-one correlation around it.
Great. Thank you. And, quick question on the margin. You know, your IT services margin seems to be holding up well, with the shift after probably hitting it, but the R&D has seen a sharp decline. I mean, can we recover the R&D margins fairly quickly, or do you think this will take a few quarters?
Well, I'm pretty sure we'll recover most of it pretty quick, quickly, because as you can see, you know, it's a mathematical truth sitting out there. You know, the costs have remained pretty much flat quarter on quarter, whereas there's a $20 million decline on the revenue line, which has percolated down to the margin. So, sometimes that can happen, and it is not kind of expected and happens during the quarter. You don't have enough time to take the corrective action. I'm sure they'll take corrective action during the current quarter.
Great. Thank you.
See some growth, hopefully.
Thanks. Last question for me on the fresh addition. How many trainees are you planning to hire this year?
... So, there's a full year plan for this year, the plan for is ten thousand. Q1 we added about 1,100, that's in line with what we had planned for Q1. But fresher addition through the year is always going to be something that we will plan quarter on quarter. We do make our plans based on what we do on campus and what we do off campus. And off campus is gonna help us get that flexibility to moderate quarter on quarter to meet the demand that we have. The going position for the year is ten thousand, that we're still going with that plan.
Thank you, appreciate it, and best luck.
Thanks, Ravi.
Thank you. The next question is from the line of Sandeep Shah from Equirus Securities. Please go ahead.
Yeah, thanks. Thanks for the opportunity. CVK, the first question is, any experience to share when the deals on ADM or IMS comes for renewal? And, what are the clients asking for any benefits to be passed on on GenAI?
Yeah. My answer may not be very popular, but I will still give it. More than the expectations from the clients on GenAI, I think it's the competitive intensity which is kind of driving some irrational behavior. That's all I would want to just say. GenAI, I think customers, especially for running production landscapes, they are a lot more pragmatic in what can be done and what needs to be done with a lot more thought and in a very gradual manner. I think we are working very well. Our AI Force platform is addressing the end-to-end life cycle of software development and application operations. And a lot of our DryIce solution suite is also now integrated into the AI Force platform.
Where the earlier machine learning runbooks were getting created, but now it's a lot more easier with generative AI, so that's all part of our AI Force platform. So we are committed to implement AI Force platform across all our customers as and when we get the approvals. And then from then on, it's a journey, and the customers recognize that. So I would leave it there.
Okay. Okay. But just the question in terms of the announced acquisition in May 2024, I do agree it will take another 6-9 months to close and not forming part of the guidance. But are you worried it may dilute our margin substantially and, so, it may change our comfort range on the EBIT margin at 18%-19% whenever it get consolidated?
Yes, Sandeep. So our guidance is organic, both on the top line and on the bottom line. So whatever, whenever the deal closes, like you said, 6-9 months from the date we announced, so that really is not in the 3-5 guided range, and neither is the margin. And as far as accounting of any new acquisition goes, most of the EBITDA that comes with the acquisition gets provided as amortization of intangibles, as you know. So most acquisition PNLs for the first one or two years are not really a bit attractive or any meaningful edit in the first couple of years. So hope that explains this.
This purchase consideration would be largely allocated towards intangibles rather than tangible assets, right?
That is typically the... I mean, intangibles includes goodwill, which doesn't amortize. So any, any acquisition, a substantial part, definitely more than 50%, definitely goes towards intangibles.
Okay. And last question, CVK, what will it take for clients to reload the discretionary projects, in terms of, reducing the leaking buckets or to start the projects which are put on pause? Based on your interaction with the client, what are events which they expect for becoming more constructive on discretionary projects?
See, I think even now there is some amount of discretionary spend happening. But for customers to become a little bit liberal and open-minded in doing new work, I think it's largely driven by the economic pressures, whether it is interest rates or inflation and things like that, or two wars. And it varies from segment to segment. So I think it's just the macro factors, I would assume. I mean, while some companies have delivered very good profitability and things like that, but there is still a conservatism that is there, which I think will loosen up a little bit with some signals and some real changes in the macros.
Okay. Thank you, and all the best.
Thank you.
Thank you.
Thanks, Sandeep.
The next question is from the line of Dipesh from Emkay. Please go ahead.
Yeah, thanks for the opportunity. Two questions. First, about the vertical technology and services team return to good growth paths. If you can help us understand what is driving, because that vertical was relatively soft for last four, five quarters. Second thing is about the GenAI related thing. Obviously, we are not the... If you can give more detail about, let's say, our growth strategy and how we are, if any, different path which we are choosing compared to some of the peers. And of course, you said we intend to implement across client base. If you can share some statistics around where we are in that journey. Thank you.
Yeah, yeah. So tech and services, I've been kind of indicating that we were seeing some green shoots of growth coming from tech and services, and it helped us grow in this quarter. At this point, there are certain programs, both on the digital business side and some of the execution of some of the other programs that we had won 2, 3, 2, 3 quarters ago, they are helping. We also see a lot of momentum with the hyperscalers in enabling their infrastructure creation and support of that. We're also seeing some green shoots on the engineering services as well, but it didn't contribute meaningfully in the last quarter.
We hope it will contribute in the next quarter. Now, coming to generative AI, I think, if you look at. If I, if I kind of summarize all the different use cases, one is very, very efficiency-led, and the second one is really innovation-led, driven by the leverage of data. So our HCLTech AI Force is a comprehensive platform which addresses all the efficiency-led benefits, both on IT processes and business processes. So this is one platform, if a customer can implement it within their enterprise, then all the functions within the organization can leverage it to drive their efficiency programs using one consolidated platform which is secure, which has got ways to look at implementation of responsible AI and traceability of the decisions and all of that.
So I think this platform is very comprehensive. It is now, while we started with Azure OpenAI, now we've expanded into a number of other LLMs. So I think it's going to be quite pervasive across. And I don't believe the industry has a similar platform. We definitely have an edge in this. The second aspect within an enterprise will be how the data which is across different functions, without going anything out external to the organization, all the internal organizational data, how is that being leveraged to drive generative AI programs and innovation around that? That is where HCLTech's Enterprise AI Foundry really helps any enterprise's AI journey, which is not just...
The efficiencies addressed by HCLTech AI Force and all the innovation around data is addressed by AI Foundry, Enterprise AI Foundry. Now, these two are leading edge, which even our hyperscaler partners recognize this as a very strong offering from our side. And we've also aligned our HCLTech Enterprise AI Foundry with all the tech OEMs like Dell, HPE, and others. So they also see a lot of value in this solution, especially where we need to implement a private AI stack. Right now, the implementations in maybe a dozen customers of AI Force are still early stages. I think it's all about getting the basic solution in place and then continue to drive adoption, and the adoption is going to be a multi-year journey. I hope that was helpful.
No, it is helpful. Just one follow-up: In terms of, let's say, now, the number of customers we have for AI Force, whether there would be any immediate revenue benefit also, or for time being, focus would be about adoption and revenue, maybe over a period we try to monetize?
Yeah. So, see, I think there are two different opportunities. The AI Force is gonna be implemented, and it's, it's gonna be more driving efficiency within the enterprise. At some point, there will be a, there is a value for the IP that we provide on an ongoing basis to the clients. Whereas the, the Enterprise AI Foundry, any solution that we are implementing will be, will give us, it's like how the small projects, discretionary spend, this is going to be one more category where we will see customers spending. And right now, we do quite a bit of, quite a bit of projects in this space. We... I mean, double-digit TCV for two deals- is what we have. But it's still early days.
I would not extrapolate anything, but some meaningful wins are happening in this space, and I believe that we have an edge over a lot of other service providers in this space.
Understand. Thank you.
Thank you. The next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.
Yeah, hi, good evening. I have a clarification on State Street. So I think the press conference, you mentioned that there was an impact on DFSI this quarter from State Street. And next quarter, we should have a 0.8% impact on revenue. So did I hear that right? Because when I see the headcount fall of 8,000, and State Street is out, the actual headcount cost remains the same on a sequential basis, so it seems like people have left towards the end of the quarter. So the question is, one, is there any impact on revenue in the current quarter due to State Street? And should we assume that 80 basis points for the whole of next quarter?
Yeah, I think maybe just to clarify what we mentioned in the press conference, and then Prateek can respond to the rest of the questions. We talked about the decline in financial services was due to offshoring of a large client. That was the main contributing factor, and that was as planned and as we had indicated in the beginning of the quarter. The final details on the State Street cost and revenue, Prateek will address.
Yeah, so, I think we covered this, Nitin, in the press conference that you referred to. There is an 80 bps impact at a company level, and at a services level, the same translates to a 90 bps kind of an impact in Q2. That is exactly what we had told you at the beginning of the quarter, last quarter announcement.
Got it, got it. The second thing to clarify was, see this quarter, I think you mentioned $70 million is the gain on other income due to State Street, but I think the consideration was $170 million. So the rest comes in the next quarter, so that was one on the State Street side. And I add another one, which is Kivike. You alluded to some weakness in Germany on the EV side. Could you help contextualize that a little better as to what exactly you're seeing? And finally, I think yesterday there was this IFC call, and even on the TCS call, there was this talk about, you know, the impact of GenAI on ADM and Infra.
So when ISG put that number at around 30% of cost savings, we just put it at 5%-20%. Just wanted your thoughts on this because you have usually been very candid about these things. So just wanted your thoughts on how, or what are your observations on this space?
Yeah. So maybe I'll address the two questions on the weakness in Europe and the GenAI ADM savings and things like that. And Prateek will address the State Street related question. Weakness in Europe was led by manufacturing, and I did talk about what were the three items in manufacturing, the productivity and assets and softness in the automotive segment. Automotive segment, especially large automotive firms who have significant software development capability. I think due to their own current stress, have ramped down on a couple of projects, which had a sharp impact in our ASAP revenue. We believe we have amazing talent and the leadership in ASAP.
We need to broad base the ASAP capabilities to our global clients, and that's what we are working on, and so I do believe this will get offset soon.
Are you saying this is cuts on EV related programs overall, or it is just specific?
Yes. I don't think it's specific. Well, there is definitely one specific thing, but overall, the EV market is... And of course, this is, this is my perspective, it's, it's, softening. Some of the investments are getting a little bit, not prioritized as it used to be. But of course, the long-term trend, I do strongly believe in it. It could be the, the economic pressures on some of the industrial customers is what is, causing this. On Gen AI, I have, been fairly clear on the, on the four, areas and the kind of impact it will have. The first is, BPO, and the testing.
I believe the benefits could be to the extent of 50%, and we ourselves have delivered programs or are delivering programs which is promising 50% savings from their current outsource spend on BPO and testing. We have examples for both. The second aspect is in ADM. I think ADM and all the operations needs to be looked at differently. In ADM, we expect productivity improvement anywhere from 10%-30% by adoption of the GitHub Copilot. And the GitHub Copilot adoption journey is also a very gradual journey. Usually, customers look at a cohort of maybe 100-200 developers and look at all the metrics and really make sure the, the productivity that is being measured, which is approved due to the Copilots and things like that, GitHub Copilots.
So all of that is calibrated, proper benchmarks made, and then that itself is significant to change management to achieve that. And then they scale from there to a much larger, 1,000-2,000 developer kind of capacity. So this is a journey, and we believe 10%-30% is the productivity saving that would come through. Even one of the most advanced companies on this, their own internal goal is to achieve 10% productivity on the software development. The third element is, the operations, the infrastructure, application, operations. This is where you are normally working on live systems, which is running mission-critical applications and infrastructure landscape. So, the GenAI's incremental value from the existing automation, machine learning and AI, led automation that has already existed.
In a very mature implementation where we've used machine learning and traditional AI technologies, the incremental benefit we would see would be in the range of 10%. That's what we expect. Of course, things like service desk and things like that, which are also in infrastructure support, maybe the opportunity is a little higher. And the fourth element is all the business innovation and the data-led AI journeys, which will really be a good growth driver, because these opportunities... I mean, actually, here, every application needs to be modernized with a GenAI kind of approach, and that's for the existing applications. And then even to leverage the GenAI in an effective manner, a lot of customers need to continue their modernization journey and streamlining of data.
So I think there are a lot of prerequisites that are becoming more and more important as we complete these POCs for a number of customers.
Sure. This is very helpful, C.V.K. Thanks a ton. And, just last on the strategic question-
We request that you please return to the question queue for follow-up questions. Thank you. The next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.
Hey. Hi, thanks for taking my question. The first question is for C.V.K. Just trying to understand, all the projects that we are delivering on the GenAI, how to understand if it's all an incremental demand that is coming to us, or it is a reflection of some projects, being prioritized on GenAI, but something else is being, you know, deprioritized? So just trying to understand if it is an incremental net positive for the industry and for us.
I think eventually it will be an incremental positive, especially the fourth category that I talked about. I would think it's incrementally positive. These trends, like I'm aware of one bank, which is looking at $500 million outlay for GenAI programs. So, this is something which is coming top-down. They believe it can be a very disruptive capability that they can leverage. So while that is just one example, but it just gives the kind of thinking that customers are going through. Of course, from the thinking to execution to giving us the program, there is definitely a time gap. So I personally think it will create a new trend trajectory.
Got it. A related question, C.V.K., on the prerequisite that you mentioned, that once you complete the POCs, you will have a lot of the work coming around modernization, which would be prerequisite for companies to implement the GenAI. Does it mean that the second stage could mean a much larger projects than that you have right now on POC stage, and much longer engagements?
I see it like more of the cloud journey, where it kept growing incrementally. That's how I see this come up.
Got it. Last question on the-
Sorry to interrupt. We would need to end our question and answer session at this point. Thank you. Ladies and gentlemen, I would like to hand the conference over to Mr. C. Vijayakumar, CEO and MD, for closing comments. Over to you, sir.
Yeah, yeah. Apologize that we've run out of time. I'm sure you have a lot of questions. Nitin will be very happy to respond to your questions as appropriate, offline or in any other conversation. And thank you for joining us today and for all the interesting questions. We want to bring to your attention that on the twenty-eighth of August, we have an Investor Day planned in Mumbai, and you will get invites, and we really look forward to seeing all of you during the Investor Day. And thank you for joining us, and thank you for your ongoing support, and have a pleasant evening. Thank you.
Thank you. On behalf of HCL Technologies Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.