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HCL’s growth in ER&D to continue as demand remains favourable: Report

HCL Technologies Ltd’s (HCL) services business is expected to report robust performance, especially in the engineering and research & development (ER&D) vertical as demand environment remains favourable, Motilal Oswal said in a report.

“We also draw comfort from improving management commentary on continued growth momentum in the IT services business,” the brokerage firm said.

HCL benefits from a sustainable demand momentum for cloud and digital engineering benefits, given its large presence within infrastructure management services (IMS), ER&D, and continued investments in capabilities. Strong headcount additions and deal wins reflect the management’s confidence on a sustainable growth momentum.

HCL has one of the largest global ER&D practices which includes client relationships with 65 of the top 100 global ER&D spenders. “It has a balanced mix of asset heavy (aero, auto, industrial, telecom, etc.) and asset light verticals (software and internet, healthcare, etc.),” Motilal Oswal said.

The management has laid down an investment plan for new emerging technologies like ‘softwareization’ within digital engineering, internet of things (IoT), and 5G. “A significant part of this investment would focus on training its employees, besides enhancing its digital centres of excellence for deeper capability incubation,” the report said.

HCL currently has more than 80 engineering labs. “The demand momentum within ER&D is strong, with demand for full scale digital engineering solutions steadily increasing. Deal sizes and visibility for ER&D services has been increasing. Its large ER&D presence and capability enhancing investments will drive continued growth for this business,” the report said.

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