Ladies and gentlemen, good day, welcome to the HCL Technologies Limited Q3 FY23 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 the conference call, please signal an operator by pressing * then 0 on your touch-tone phone. We now have the conference over to Mr. Sanjay Mendiratta, Head Investor Relations. Thank you. Over to you, sir.
Thank you, Aman. Good morning and good evening, everyone. A very warm welcome to HCLTech Q3 fiscal 23 earnings call. A very happy New Year to all of you. We have with us Mr. C. Vijayakumar, CEO and Managing Director at 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 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. 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 the difference. Over to you, VK, and thank you.
Thank you, Sanjay. Good evening, everyone. Thank you for joining us for HCLTech's Q3 FY 2024 earnings announcement. Very happy New Year to all of you from the entire HCLTech family. Now to our results for the quarter. I'm very happy to share that we've 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 HCLSoftware 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 effect of 19.6%, driven by improvements in our services business and seasonal gains due to the peak performance in the software business. Overall, we're 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. 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 six Gartner IT services Magic Quadrants. This, when combined with the strong propositions and people skills, it reflected in our strong growth over the last many quarters and our future outlook.
This is also a big acknowledgement of the effort HCL Techies have invested over the last few years to address every need of our clients. It tells the market very clearly that HCLTech has the three sixty degrees propositions to address the IT services needs of Global 2000 clients. Today, the clients, sourcing advisors 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. This achievement is well aligned to our first of the strategic objectives, which is leadership through differentiated services and products. In terms of segmental, vertical, and geographic performance, our HCLSoftware business delivered an outstanding performance, growing 30.5% quarter-on-quarter in constant currency.
HCLSoftware business scaled up impressively this quarter and it 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. HCLSoftware 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 are HCL Software clients, and we see synergy benefits for our services business as we get more clients here. HCL Software announced a multi-year partnership with the legendary Formula One 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 HCLSoftware logo will make its debut on Scuderia Ferrari's racing cars. This follows our partnership as an official digital transformation partner of MetLife's 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 HCLTech, the industry's best-kept secret, closer to our clients, partners, communities, and employees. Now to vertical geography.
Geography growth was once again led by Europe at 7.2% sequentially in constant currency, followed by Americas at 0.5% QoQ in constant currency. Our top performing verticals were life sciences 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 client base. We added 3 in the $50 million category and 2 in the $20 million category on a QoQ basis. As you would remember, another of our strategic objectives 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 to 10% year-on-year on a total contract value basis and 2% on an annual contract value basis. 17 large deals across services and products. Among the larger 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. A US-headquartered Fortune 300 financial services firm selected HCLTech to lead its global technology transformation program. This program includes modernization of client 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 HCLTech as its primary IT partner.
HCLTech will manage end-to-end IT operations and enterprise-wide digital transformation to enable ODP's business strategy in its Office Depot ODP business solution from their 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 HCLTech to enable Mattel's future direction and product operating model, along with continued digital transformation journey. As the primary IT partner, HCLTech 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 house, we have 10 large wins, healthy mix across the portfolio, plus some good wins on a subscription or a SaaS model. A Global 50 automobile major has expanded its partnership with HCLSoftware 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 HCLSoftware to provide a modern and seamless digital experience to its customers and business partners. A Fortune 500 hospitality company has selected HCLSoftware to enable multiple business functions, including HR employee planning, 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 in professional services across some key geographies. Our headcount ramp-up continues. We had 2,945 net new additions to our family in this quarter, and 5,800 freshers in the quarter were onboarded. Our people ramp-up plans, be it freshers or nearshore or New Vistas, are progressing in line with what we had announced as a medium-term plan during our Investor Day 2022 in May 2022. 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 HCLTech 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 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. Our confidence is generated by a good booking and pipeline across every segment. I have no doubt that if we achieve the four strategic objectives and the progress we have made towards them, the fifth one, to deliver top quartile CSR 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. Give you some quick wrap up of the growth, and then I'll get into how the EBIT has moved, et cetera. Year-on-year in constant currency, we grew 13.1%. Our services grew 15.4%. On a sequential basis, in constant currency, we grew 5% led by software, growing at 20%+. 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. 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 20%. Services came in at 37.4% as compared to 36.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 157 basis points has been contributed by HCLSoftware, being most of the revenue flows down. The extra C4 revenue flows down to EBIT, as you know. Services margin improved by fifty-ten basis points after absorbing the salary increment of 70 basis points that I talked about.
Furloughs and holiday season also impacted by about 60 basis points. 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. Points gain was another 70 basis points as well. 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've narrowed all 3 of them. The revenue guidance at the overall company level, we are at 13.5%-14%, which is the same as what we had indicated at our US Investor Day.
It's in line with that. All the three narrowing of the range is in line with that. Services is now at 16%-16.5%. Margin guidance is at 18%-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. You will notice that our unbilled has reduced significantly in this quarter and over the last two quarters. As we have billed faster, which will, which should help improve our collections in Q4, because what we have billed 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.
Free cash flow at INR 1,823 million, INR 1.8 million. Both being, OCF being 111% of net income and free cash flow being virtually equal to the net income.
The balance sheet remains strong with gross cash at $2.5 billion and net cash at close to $2 billion, 91.95 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. We are facing the tougher compare there. As per our continuing steady practice of quarterly dividend, we have declared—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 January 20 and payment date will be February 1. With that, I hand it back to the operator for Q&A.
Thank you very much. We can now begin the question- and- answer session. Anyone who wishes to ask a question may press * and 1 on your telephone. If you wish to remove yourself from the question queue, you may press * and 2. Participants are requested to use handsets when asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is the line of Ravi Menon from Macquarie. Please go ahead.
Good morning, guys, and good quarter. It seems the product growth is even stronger than what we saw last year. I thought last year we talked about the exception. Are you confident that you'll now see this segment being stable to growing from here on? Your exit call initial is strong from recent activity.
Yes, we had a good growth and our expectation is that the trajectory will continue. However, it is early days for us to really provide any concrete guidance. We've got several foundational blocks in place and they seem to be working in the right direction. This is not a trend yet. We would be a little cautious before calling out a trend. We will see a few more quarters before seeing a trend.
Sure. Any particularly large wins, in this, that we might not be aware of
Are you talking specifically to the software business?
Yes, yes. Yes, software.
Software, we had 10 deals which we consider as large deals in software. I think in a seasonally strong quarter, that's a little more than what we would have expected. A number of customers increased their consumption. Some new clients got added, as I 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.
Okay. Thank you.
It's more broad-based. It's not because of one big deal or anything like that.
Financial services had a decline this quarter from 77 to 70. In the summer meet in New York that you were seeing higher furloughs in financial services. Will this bounce back next quarter? Also, in care and high-tech that's also a little weak. Here what could be the cause of the customers being distressed? Should we think there are some projects being put on hold or even they can't come to these other verticals?
Let me take it 1 by 1. Financial services largely are due to furloughs. I think we took the biggest hit in furloughs in financial services. I see good growth coming back in financial services. This also is going to be enabled by 2 large deals. One we had announced last quarter, one more, half a billion dollar plus deal, which we find in this quarter, both of financial services. I think we've been pretty confident of a very healthy growth in financial services as we move forward. 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 that were stressed which had an impact and that's kind of little bit continuing which is causing the ramp down with this client. Tech services, as I called out I think our concern really came from we did not see furlough kind of impact in tech services in the past. This year we did see especially some large techs trying to kind of optimize their spend for the year. 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.
There is also an increased propensity to offshore. In fact, a couple of large big techs which had a 50/50 ratio for onsite offshore, they are significantly moving to a much higher offshore adoption. There is also one vendor consolidation deal which we find this quarter, where there are three vendors who are going to take the lines of business. So I think these trends that we've seen will help us stabilize and grow the techware vertical. The year-on-year growth is still very, very strong, and we expect to continue growing there. Thank you.
Yeah, margins for IT services is still 100 basis points below the pre-COVID trajectory level of 7.8%. With attrition now starting to come off, do you think we can get back to those normal notes for IT services, or are there any structural challenges that we should be aware of?
I will request Prateek to respond.
I think that is the intent we said in our, I mean, at a company level, we said we do want to get back to the pre-COVID levels, the company band of 19%-20% that we've had over a long period of time for 5+ years. That is the intent and aspiration, and we are all working towards that.
Thank you, Prateek. Best of luck.
This quarter, while the Services margin is only 10 basis points up, we have taken the impact of salary increases, as Prateek had called out earlier. We've taken an impact due to the furloughs. Even ForEx has benefited. Still, I think on both pressure adoption and all the operational improvements, we've got a 60, 70 basis points benefit. Services margins are improving, and we will continue to see that kind of trajectory as we move forward.
Thank you, gentlemen. Best of luck.
Thank you.
Thank you.
Thank you. We'll take the next question from the line of participants. To limit a question to one per participant. If time permits, we may join with you for any follow-ups. Thank you. The next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.
Hi. Congrats on good execution. 2 questions. Firstly, what's been happening on the top 10, top 20 accounts? If I look at that as % of revenues, it's declined not just in this quarter but actually for last several quarters. Any particular phenomena that is going on the top 10, top 20 accounts?
Yeah. There's a technical reason. I think it's partly because some of the revenue which was getting accounted under IBM due to the revenue which was coming with the transfer of contracts. That is now coming to our books. Basically there's one continuing factor which keeps reducing this one. ForEx is also another reason. I think these are the two of them. Otherwise, there are normal client moments 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. If macro were to deteriorate, how much of risk that may be from your orders, or the pipeline perspective?
I think, we did not say that booking is skewed towards Europe. The booking is a lot more skewed towards U.S., North America. That's one. Now the second aspect is Europe had a pretty strong growth this quarter, followed by previous quarter, which was also good. This is really coming from execution of one deal which we had won some time back and also in the telecom vertical. That is, that is one reason. And there were also some projects where we had certain assets that were involved. Some of the supply chain easing, they were planned to be delivered this quarter. These two elements helped almost a significant increase in the telecom business in Europe, and that caused this big uptick.
You will see that our 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 neutralized that. Now in terms of macros, our booking has been very strong in the US in the last two quarters. 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. I think we will see two, three next year. We will see a continued reduction.
There may be a little softness in the interim.
All right. Last question, CVK, on the booking front. you last time gave a outlook that you expect very good bookings in December quarter, that's how it translated into any kind of a visibility that you might be able to provide for March quarter bookings, if possible? Thank you.
It's difficult to call that out. I do feel confident from on a year-over-year basis, we are probably up 13%, I think YoY, 13% up from a 13 perspective. We think to maintain that, it's difficult to. I mean, we can't be always spikes, right? Some things which we expect to happen in March could happen in April, it's difficult to commit to a number. 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, that is a very strong traction there. I think that will kind of compensate for some kind of softness in the discretionary expense.
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 starting to see a good traction around that. All of this is giving us confidence that the pipeline and the order, 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 things will continue to be good, and then that will eventually translate to revenues.
I think, sir, Gaurav has highlighted that, if you see our last five or even six quarters, it's been very steady sort of numbers between $2 billion-$2.5 billion in all of these quarters. I think, as you know very well, sir, 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.
Thank you very much.
Thank you. Ladies and gentlemen, please limit your question to one per participant. If time permits, you may join the queue for any follow-ups. Next question is from the line of Manik Taneja from Axis Capital. Please go ahead.
Hi. Thank you for the opportunity. Pankaj Kapoor, with your views around the aspiration to get back to that 19%-20% EBIT margin that you suggested during the US earnings day, if you can help us understand how you see the situation evolve from a V-shaped standpoint going into next year. If you could also call out the different levers that you think will give you an advantage in terms of EBIT margin improvement over the foreseeable future.
Manik, there are two 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. 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're being trained and deployed on projects and start to build. The time to build improvements that we have been making progressively is the first giver.
It is basically, quarter after quarter, year after year, as we keep building that layers, it is a layered strategy, if you like. That really forms the bedrock, the bottom of the pyramid over three, four years. 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? 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? As our attrition is moderating, quarterly annualized attrition is significantly come down over the last two quarters, actually.
Last 12 months doesn't show that to be honest. In QAA terms, quarterly annualized attrition, that has come down quite a bit. That gives us the levers to reduce the unbilled people on the projects and so on and so forth. Utilization, to my mind, is one of our biggest levers continuing. Then of course, all the offshoring of the work, nearshoring of the work and improvements in the new 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. last quarter was a 1%, this quarter it's that 13 days that I called out. Those are continuing and as more and more deals of the last 12 months come, become more % of the total, that will keep on improving, I believe. Those 3, 4 things are the biggest levers. 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 increment and then deliver higher EBIT and all the other metrics thereafter.
Sure. Thank you for the detailed response. One last clarification question with regards to the typical seasonality that we see around the services business between third quarter and fourth quarter. Typically, fourth quarter tends to be higher in terms of sequential growth. Do you expect that trend to stay in FY23, given the current macro backdrop?
You're talking about the services business?
Yes, that's right.
Yeah, 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. That is all baked into the guidance that we've given. 16%-16.5% kind of captures that quite adequately.
Sure. Thank you. I have next question, sir.
Thank you.
Thank you. Next question is from the line of Sandeep Shah from Equirus Securities. Please go ahead.
Yeah, thanks. Thanks for the opportunity. CV, just wanted to understand within the deals you see, which has been healthier for us, is there any major change in terms of proportion of deals which are cost takeout vendor consolidation-led deals versus discretionary transformation digital-led deals? Will this trend continue and the proportion may keep increasing, which may give us a confidence that FY 2024 could be again a healthier, especially in the services business?
Yeah. So, Sandeep, in fact, the three large deals from this quarter, none of them are really driven by cost takeout. One is really a realigning a product operating model. Right now the client is already outsourced in a onshore-offshore model. 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 one. The number two 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 have not looked at the client as futuristic. Right. 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. 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. 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 2023? That could be what has been implied from some of the hyperscalers, where we see the last two years has been very great in terms of cloud migration, which can normalize going forward now.
I think, see there is this new hybrid operating model or remote operating model which was driven by COVID. I think it definitely gave a huge spike to cloud consumption. That is just only one leg of opportunity, and that was really led by more consumption and not much of the 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. The customer wants to also make the best use of the booking commitments they've given, and the hyperscalers are also encouraging them to accelerate migration. 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've contracted. I see more and more urgency to really drive this. It is still not lift and shift is not very high. Unless they have a very aging infrastructure, so they kind of look at it as a, as an easy solution to do lift and shift, and they can do a modernization and optimization later. Most large clients are looking at application modernization and rearchitecting the landscape to perform financially in an optimal manner on the cloud environment. I see that trend continuing and, I see it only accelerate.
Okay. Okay. Thanks, and all the best.
Thank you.
The next question is from the line of Surendra Goyal from Citigroup. Please go ahead.
Yeah. Hi, CVK. Thanks. Thanks for the opportunity. Any early thoughts on IT budgets, timing, direction? What are your client conversations suggesting?
Okay, Surendra. It is early days to get a sense of the budget. What I can see, there are sort of two things, right? One is the discretionary spend, and I think I don't think anybody has a good grip on what is the level of moderation that can happen in discretionary spend. What we saw in the last quarter was wherever the projects were not critical, clients had kind of deprioritized that. 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. I think that's one aspect which is a little more they could go into this year to realize what the impact will be.
A lot of the deals are going to come out of the current spend customers are doing, either vendor consolidation or cost optimization. I think that's not going to be driven by what budgets they have. It's really close to $10 billion-$15 billion worth of vendor consolidation opportunities are expected in the next 2.5 years. I think that's where we are going to get a good outcome for ourselves.
Sure. Just one more follow-up. I think Prateek did talk about realization improvement. I just wanted to understand about realizations of 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. Basically all deals signed since then, have been at the better rates. There has been no change in that, in this quarter or the previous quarter.
That includes the vendor consolidation cost takeout kind of deals, right?
Yeah. Like CVK said, we've not had too many of them in law. I mean. The cost takeout, in actually this quarter is driven by three deals which has nothing to do with cost takeouts. Yeah.
Just one.
Go ahead.
Sorry.
Go ahead. Go ahead.
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?
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. I would leave it there.
Fair enough. Thanks a lot.
Thank you.
Thank you. The next question is from the line of Girish Pai from Edelweiss Institutional Equities. Please go ahead.
Yeah, thanks. Thanks for the opportunity. The ACV number for the quarter on a year-on-year basis grew by 2% versus in the first half it grew by approximately 20%. How can one read into this slowing number? Is it because the tenure of the deals you won in the quarter are they larger?
I think the large deals have a slightly longer tenure. 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. I think that has a skew. Nirmal, one thing if you have to look at our YTD booking and you were to do a ACV growth, it's Girish. ACV growth is 13% on a YTD basis. That's a pretty strong growth on an ACV aspect. This quarter maybe the mix of deals was a little different, so ACV was this much.
Do you see the mix of deals continuing the way you saw in Q I mean, will this mix continue into the next two quarters?
Difficult to call. I mean, deals come in all kind of shapes and forms and tenures. We feel there is reasonable market opportunity to at least create a 10% ACV increase. I'll leave it there. I mean, it can always, I mean, what is not happening in Q4 can happen in Q1. On a rolling 12 months basis, I think that would be a good expectation and goal for us to work.
Yeah. Sunny, just one last question. The third-party hardware and software, that you kind of incurred in the cost part. Is it, do you see a situation where customers are pushing more of these onto the vendors, unlike, say, 12 months back? Is that a phenomenon that you're seeing amongst customers?
No, Girish. I don't see any specific phenomenon. 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 early September, October timeframe. That kind of helped us to kind of finish some of the project deliverables, which was all planned. It was, it was expected. Either it was in Q2 or Q3. It really happened in Q3.
Okay, thank you very much.
Thank you. Next question is from the line of Abhishek Kumar from JM Financial. Please go ahead.
Hi, thanks for taking the question. I just wanted 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?
Yeah. I have Vijay Guntur, who's President for Engineering and R&D Services. I would request him to give a commentary.
Hi, Abhishek. You're right. Some of the decisions on product lines and the product discontinuing are impacting. We have a large part of our business which is about assessing existing products and also transforming. That in a way is giving us a cushion to take care of some of the headwinds that we see. This is not across all of our engineering services business. In the tech space, we see a little more, whereas in our asset heavy business, we don't see this kind of a change.
Sure. Just for my understanding, I mean, what percentage of ER&D roughly would be technology? Is it like the largest one? It's not very large.
It'll be a little over 11%.
Okay.
Of our total ER&D.
Sure. Thank you, and all the best.
Thank you.
Thank you. The next question is from the line of Komal Mehta from Motilal Oswal Financial Services. Please go ahead.
Hello.
Hi. We can hear you. Please go ahead.
Yeah. I wanted to ask, like, do you face any major challenges with employee costs as startups are hiring at higher packages?
No, I think it's. That was the issue two quarters ago and even last quarter. This quarter we are already seeing a little bit moderation in the talent cost and attrition and all that. Attrition came down significantly. The situation has improved quite significantly in this quarter.
What kind of fresher hirings are you looking at in the coming quarters?
I would request Ram or Tushar to comment.
The fresher numbers, whatever we have planned for this year, we would be getting pretty close to the planned numbers. There'll be some slight moderation, but the attrition has started dropping quite significantly. We're going to be making some small moderation to that. Otherwise, we'll continue with the plans which we've made for the year.
Okay, thank you.
Thank you.
Next question is from the line of Sidharth Ajith from Quest Investment Advisors. Please go ahead.
Yeah. Hi. Thanks for taking my question. Wanted to know on the ACV for the software bins. 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 where permission, we've already given an indication. Usually the software ticket sizes are small. It could be anywhere from $100K to maybe $10 million kind of ticket sizes. That's what we typically see.
All right. That's helpful. Thank you so much.
Thank you.
Thank you. Ladies and gentlemen, that will 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.
Yeah. 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, tech spend of the clients. There can always be, 1 or 2 quarters where there can be some moderation. Our strength of our proposition, 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. 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.