HCL Tech posts weak numbers in Sept quarter

Net profit down 7.9% owing to one time client provision; profit, revenue figures narrowly miss estimates

HCL Technologies, India's fourth largest IT services company on Monday reported a 7.9 per cent decline in its net profit at Rs 1726 crore in the quarter ended September 30, 2015 when compared to the same quarter last year. The net profit took a hit owing to a one-time provision of $18.4 million the company made for a particular client project during the quarter.

The revenues at Rs 10,097 crore, grew 15.6 per cent when compared with the corresponding quarter in the previous year. On a sequential quarter basis, the net profit was down 3.2 per cent while revenues grew 3.3 per cent.

In dollar terms, the net profit at $264 million (including the provision) declined 14.2 per cent on YoY basis while on QoQ basis it was down 5.4 per cent. The revenue grew 7.7 per cent at $1545 million when compared with the year ago quarter while on QoQ basis it was nearly flat with a growth of 0.5 per cent.

The company narrowly missed the consensus analysts' estimates both in terms of revenues as well as profit, during the quarter. According a Bloomberg poll, analysts were expecting the company to post a consolidated net profit of $271.76 million on a revenue of $1.55 billion. In Rupee term, net profit was estimated at Rs.1760.5 crore on net sales of Rs.10066.2 crore.

"HCLT's results were lower than expectations. The CC (constant currency) revenue growth of 1.2 per cent came in below estimates and was lower than the growth reported by Infosys and TCS," said Dipen Shah, Head of Private Client Group Research, Kotak Securities in a post earnings note. "IMS (Infrastructure Management Services), the growth driver for HCLT's revenues, reported a 0.9 per cent growth in CC terms. We maintain that, the competition in IMS market is set to intensify with several players now focusing more on this segment," he added.

The company posted an operating margin of 19.4 per cent (after the adjustment), mostly in line with the expectations. In terms of growth from geographies, the growth from North America was just 0.6 per cent in reported currency term, while Europe grew 4.8 per cent on sequential quarter basis. HCLT's large industry peers including Infosys and TCS have posted strong growth from the US this quarter. For example, Infosys reported 6.1 per cent sequential growth in North America (in reported currency) while its QoQ growth in Europe was 8.3 per cent.

In terms of business units, the growth of IMS business which accounts for nearly a quarter of HCLT's overall revenues, was nearly flat with a sequential decline of 0.1 per cent in reported currency. Among the key business verticals, financial services grew by just 0.8 per cent whereas in the growth in manufacturing business was almost flat sequentially.

Interestingly, HCL Technologies reported a reduction in headcount in the September quarter as compared to the previous quarter. The company's headcount at the end of September quarter stood at 105,571 when compared with 106,107 as reported at the end of June quarter, even though the attrition in IT services business at 16.3 per cent as nearly the same as it was in the previous quarter. The company said it was because of some 'rebadging' exercise it did with respect to a client in onsite location.

Looking down, the company said its deal pipeline looks healthy. During the quarter, HCL Technologies won around 10 transformational engagements with a total contract value (TCV) of in excess of $1 billion. "Our order book is 10 per cent higher than what we had previously seen. Given, we have long term contracts in IT outsourcing and infrastructure management, the conversion of those contracts into this fiscal would be much better. From a full year perspective, we are confident of delivering a good growth," Gupta added.

Meanwhile, the company has said that it has signed a definitive agreement to Bengaluru-based privately held engineering services firm 'Concept to Silicon Systems' (C2SiS) for an undisclosed sum.

"C2SiS today is empowering strategic change in a broad range of industries with its specialisation in system-on-chip and system design services and its client list includes Fortune 100 and Fortune 500 companies," the company said.

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