Record numbers for HCL in 2012

Upgrades likely as firm beats estimates on earnings, margins & new deal wins

The country’s fourth largest IT services company HCL Technologies has exited 2012, supposedly a very bad year for the technology sector, with record numbers. In the quarter ended December (second quarter for HCL Tech), the company’s dollar revenues grew by 3.6 per cent sequentially to $1.15 billion, which is the highest in five quarters. This was aided by a strong volume growth of three per cent. No wonder, the company is calling it a take-off quarter. For five straight quarters, revenue growth has been on an uptick and margins have expanded. Rikesh Parikh, vice president-markets strategy and equities at Motilal Oswal says: “Margin improvement resulted from higher utilisation (140 basis points improvement) and lower SG&A expense (50 basis points).” The company’s net profit too, is up 9.7 per cent sequentially to $177 million.

In calendar 2012, the company clocked revenues of $4.39 billion, thanks to growth across verticals, service lines and geographies. Despite fiscal issues facing the European Union, Europe grew by 4.2 per cent and the Americas by 3.4 per cent. Europe has seen spends in public services. Analysts say the second quarter (December quarter) has been good for the company and numbers have positively surprised on all fronts. The market was expecting margins to decline but the company has actually expanded them by 50 basis points. This is not a one-off thing and the company has been consistently improving margins over the last several quarters. Its net margin has moved up to 15.4 per cent in the December quarter of 2012 from 10.3 per cent in the December quarter of 2010, while earnings before interest and taxes margin expanded to 19.8 per cent in 2012 from 13.1 per cent in December 2010. Analysts say earnings upgrades are likely, given such a performance.

Clearly, challengers like HCL Tech have been agile in the marketplace and managed to cater to the needs of clients by going beyond vanilla outsourcing. Newly-minted chief executive officer Anant Gupta attributes HCL Tech’s superior performance to many things. He says: “Growth this quarter was driven by infrastructure and financial services, both growing in excess of 10 per cent sequentially. Six large transformational deals have once again given us a billion dollar booking quarter. On the back of this industry-leading performance, HCL is now ready to redefine the market with its alternative outsourcing (AO) model. The AO approach consists of business-outcome aligned IT services delivered through alternate delivery models.”