HCL Tech net up 28%, tops estimates

Sequentially, the net profit was up 2.3% and revenues 6.3%

HCL Technologies, the country's fourth-largest information technology services company, not only beat street expectations but tided over massive currency fluctuations and a seasonally weak quarter to deliver a 6.2 per cent growth rate in its dollar revenues for the October-to-December quarter, the highest for the company in sixteen quarters.

The company has made a good headway in Europe as others struggle. It has a head start in the engineering outsourcing services. It is less dependent on financial services' revenues, under stress due to banks in the US having to pay fines.

The company on Friday reported a 28 per cent jump in its net profit at Rs 1,915 crore in the December quarter. The revenue at Rs 9,283 crore grew 13 per cent year-on-year. Sequentially, the net profit was up 2.3 per cent and revenues 6.3 per cent. In dollar terms, the company posted a four per cent sequential growth, with revenues of $1,491 million.

HIGHLIGHTS

• Rs 1,915 cr HCL Tech’s net profit for the October-December quarter. The result was helped by a strong growth in engineering services and a rising customer preference for digital solutions
• 13.4% The consolidated revenue grew by, to Rs 9,283 cr in the quarter against Rs 8,184 cr a year ago

"Balance performance - infrastructure as well as non-infrastructure - is the headline this quarter," said Steve Cardell, president, enterprise services and diversified industries. "All cylinders were firing," he added. Cardell presided over the conference in the absence of the chief executive and president, Anant Gupta, not there due to an injury.

HCL Tech's stock shot up 8.8 per cent to close at Rs 1,794.35 on a day when the sectoral index ended flat on the BSE.

Revenue growth during the quarter was largely driven by engineering and research and development services, whose share to the revenues has increased from 16.6 per cent the same quarter last year to 18.3 per cent in the December quarter. Infrastructure services, which make up over a third of the revenues, grew at 6.2 per cent in constant currency. HCL Tech has signed multi-year multi-million dollar deals in excess of $1 billion, including 15 transformational deals, it said.

"HCL Technologies' results beat expectations on revenue and margins," said Dipen Shah, head of private client group research at Kotak Securities, in a note. "The sharp growth in revenue has come after a moderation in the past few quarters," he added.

While in Americas, there is an all round optimism, with clients looking at engineering services, digitalization contracts etc, the pressures facing European countries such as France is forcing them to look at cost optimization by outsourcing to foreign vendors, added Cardell. This trend is expected to further drive growth, he said. While Americas grew at 6 per cent, growth in Europe came at 7.2 per cent for the company.

Anil Chanana, chief financial officer, HCL Technologies, said "We continue to do well in managing our working capital and delivered superior return on equity at 38 per cent for calendar year 2014. In order to expand the retail base, the board has recommended issuance of bonus shares in the ratio of 1 share for every 1 share held." The company also announced dividend of Rs 8 per share.

HCL Technologies seems to be using all levers to improve profitability and margins. During the quarter, employee utilisation, including trainees, hit 82.9 per cent. The company is hoping to retain utilisation at current levels. Voluntary attrition during the quarter was dropped marginally to 16.4 per cent.

The management has said that the slight weakness seen in financial services is not cause for concern. The share of revenue from the financial services vertical declined to 25.9 per cent in the December quarter from 28.2 per cent in the previous one. The management said the vertical's average growth rate was 4 per cent in 2014 and is expected to pick up later in the year.