HCL Tech takeaways

HCL Tech’s stock price reflects the market’s surprise over its strong performance for June 2012 quarter. The stock trades at Rs 513 a gain of 6.5 per cent over the previous day after the company announced a 41.8 per cent quarter on quarter profit growth, much ahead of analyst expectation of Rs 675 crore.

Following are the key takeaways from the company’s results

• Revenue growth of 13.5 per cent as compared to the previous quarter in rupee term at Rs 5919.1 crore, in dollar terms income grew by 3 per cent at $1,079 million. Constant currency growth was much stronger at 4.6 per cent.
• Operating profit increased at a much faster rate of 35.6 per cent to Rs 1,300.8 crore on account of better operating margins which increased from 18.39 per cent in March 2012 quarter to 21.98 per cent in June 2012. Operating margin in dollar terms was also similar.
• Growth has come largely from software services as its BPO service posted a mediocre performance. Revenue from BPO services increased by 6.2 per cent to Rs 261.2 crore while contributing only Rs 17.7 crore at the EBIDTA level. In dollar terms there was a decline in revenue from the BPO division from $49.4 million to $47.6 million.
• In terms of geographies, revenue from US grew by 2.7 per cent while from Europe it increased by 7.1 per cent QoQ. Collectively these two geographies contribute 81.5 per cent of the revenue. The remaining 18.5 per cent is contributed by Asia-Pac which increased 6.9 per cent.
• As for verticals, financial services which accounts for 26 per cent of revenue share grew by 5.2 per cent while manufacturing, representing 28 per cent of revenue, increased by 1.6 per cent. Strongest growth of 22.9 per cent was witnessed in the Healthcare sector; however, its contribution to the topline is only 7.9 per cent.
• With a total employee count at 84,319 the company’s attrition rate stood at 14 per cent down from 15 per cent in the previous quarter.
• Pricing witnessed an uptick of 0.4 per cent while volume growth was 1.8 per cent.

Comments:

Overall a strong performance from HCL Tech, much better than its top three peers. Though the company has not given guidance yet, they have hinted at margins reducing by 180-200 bps on account of wage hike which will be spread over two quarters. HCL Tech’s management in a TV interview has said that focus of the company will be on maintaining momentum rather than margin.