HCL Tech's Dec show best in 16 quarters, 2014 RoE at 38%

Dollar revenue up 4% q-o-q, with a number of new big deals

HCL Technologies has exited 2014 with a return on equity of 38 per cent, up from 35 per cent in 2013. The company, which continues to report sector-leading growth in top line, ended the December quarter with a sequential growth of four per cent in dollar revenues ($1.49 billion) and a 6.2 per cent growth in constant currency terms.

The management conveyed growth in constant currency of 6.2 per cent is the best in 16 quarters. Unlike two years ago, revenue growth is broad-based. Deal wins have remained robust, with a total TCV of $1 billion during the quarter. Revenue growth was driven by engineering and research and development services at 12.6 per cent, infrastructure services at 6.2 per cent, business services at 4.5 per cent and application services at 3.8 per cent.

Like most other outsourcers, HCL Tech’s revenue was impacted 2.2 per cent on account of currency fluctuations but there was little impact on profits. The company improved the gross margin by 160 basis points (bps) to 38.4 per cent sequentially and operating margin by 90 bps to 26 per cent. Net income margin, however, declined 310 bps to 18.3 per cent. The management says other income was higher in the previous quarter and if adjusted for this exceptional item, the net income margin is up seven per cent.

Net profit grew seven per cent in dollar terms to $308 million sequentially and 27 per cent over a year. In rupee terms, net profit grew 2.3 per cent sequentially and 28 per cent over a year to Rs 1,915 crore. Net addition of employees was 4,718, taking total headcount to 100,240. Employee utilisation, including trainees, hit 82.9 per cent.

Anil Chanana, chief financial officer, said the strong revenue growth was noteworthy. “This has been accompanied by growth in net income (before the extra-ordinary gains last quarter) of seven per cent quarter-on-quarter and 27 per cent over a year. We continue to do well in managing our working capital and delivered superior return on equity at 38 per cent for 2014.”

The company’s growth is broad-based and its dependence on infrastructure management services is down, with nearly half the incremental revenue coming from other service lines.