HCL Technologies profit declines 2.8%

Dip on operational cost; revenue up 16%

Weighed in by higher operational costs, HCL Technologies reported a 2.8 per cent drop in its net profit at Rs 1,783 crore for the quarter ended June 30, 2015, compared to the same period last year, while revenues rose 16.1 per cent to Rs 9,777 crore. On a quarter-on-quarter or sequential basis, the company’s profit was up 5.9 per cent and revenues increased 5.5 per cent.

HCL follows a June-to-July financial year.

The HCL stock reacted sharply to the drop in profits by falling 5.63 per cent on the BSE to close at Rs 942 on a day when the benchmark Sensex rose marginally by 0.26 per cent to end at 28,187.06 points.

Dipen Shah, head of private client group research at Kotak Securities, said HCL Technologies’ results were lower than expectations, both on the revenue and margin fronts. “There was a significant miss on the margin front. The relatively higher utilisation rates, coupled with the need to increase sales, marketing investments and investing in emerging businesses may continue to impact profitability in the short term,” Shah added.

The company, which has been the last among the top IT companies to announce its financial results, attributed the drop in profits to higher Visa cost, sales and marketing spend and continued investment in its delivery centres. HCL also said it hired 14,000 employees in the last financial year, out of which one-third were at onsite locations, which is much higher than the average 10-15 per cent the company employs in its foreign offices. Around 3,000 onsite employees came on HCL’s rolls owing to ‘re-badging’ after the company signed some large engineering deals as a result of which employees of the client moved to HCL.

According to the company, it will be able to leverage these employees to acquire more capabilities and move some work offshore to better the margins. Even though the profitability over the next two quarters are also likely to be subdued since HCL implements hikes during this period, it expects to maintain the margins in the 21-22 per cent range, said its chief financial officer Anil Chanana. On a constant currency basis, HCL announced a sequential growth in revenue of 2.9 per cent.

Anant Gupta, CEO and president of HCL Technologies, said the company’s growth was broad based with all verticals posting strong double-digit performance in 2014-15 and industry-leading growth in the US and Europe with 14 per cent and 18.7 per cent, respectively.

“FY15 also saw us signing of 58 transformational engagements with $5 billion of total contract value,” he added.

For the full-year ended June 30, 2015, its net profit moved up 13.9 per cent to Rs 7,254 crore and revenues rose 12.6 per cent to Rs 37,061 crore, compared to FY14.

Some of the highlights of the quarter include HCL’s infrastructure business exceeding $2 billion in revenues with engineering and R&D services.

The company’s next large bet – exceeding $1 billion in revenues.