HCL Technologies: Catch-up quarter

Revenues grew in tune with peers but rupee appreciation dims overall outlook.

HCL Technologies reported a revenue growth of 21.4 per cent year-on-year (y-o-y) to $685.2 million (in constant currency terms) during the March quarter, up 5.1 per cent as compared to the previous quarter. Segment-wise, consolidated revenues from the information technology (IT) services grew nearly 25 per cent y-o-y and 6.6 per cent quarter-on-quarter (q-o-q).

Business Process Outsourcing (BPO) revenues continued to drag down numbers, dipping 10 per cent below the previous quarter and 8 per cent y-o-y. But, they are expected to stabilise after restructuring in a couple of quarters, management suggests.

Rupee revenues felt the brunt of the currency movements, rising 7.5 per cent y-o-y and 1.4 per cent q-o-q to Rs 3,706 crore. While infrastructure service revenues grew 11 per cent sequentially and 58 per cent y-o-y, core software service revenues were almost flat sequentially.

Earnings before interest, tax, depreciation and amortisation margins contracted 160 basis points y-o-y to 19.7 per cent in the recently-concluded quarter. Lower depreciation and amortisation charges, coupled with lower forex losses (down 50 per cent q-o-q), boosted net profit 58 per cent y-o-y and 16 per cent sequentially to Rs 344 crore.

Moreover, with financial sector revenues (common currency) growing 5 per cent q-o-q, the revenue growth was distinctly more broad-based this quarter. Manufacturing sector revenues grew 10.5 per cent, revenues from media, publishing and entertainment were up 16 per cent and life sciences revenue growth was 10 per cent sequentially.

The company has nearly doubled its hires this quarter, adding 3,152 employees including nearly 5,000 gross lateral hires. Attrition has crept up to nearly 14 per cent. Given the offshore utilisation at almost 80 per cent, the cost pressures from salary hikes will continue to be a key worry. This, with rupee appreciation, dampen the outlook for the company.

The revenue bounce-back sent the stock soaring 10 per cent since results were announced. The stock closed at Rs 380.80 on Wednesday and trades at a P/E valuation of 15x consensus analyst FY11 (June-end) estimates.