HCL Tech net profit for Q4 up 41.6%

Board decides to raise FII limit to 49% from 30%

Buoyed by strong growth in revenue, a favourable currency and operational efficiencies, HCL Technologies Ltd reported a 41.6 per cent jump in net profit at Rs 1,210 crore for the Q4 ended June 30 against the corresponding period last year. Revenue of the country’s fourth largest software service provider grew 17.3 per cent on a year-on-year basis to Rs 6,944 crore during the quarter.

The better-than-expected results reported by the company reinforce the broader trend propelled by results of HCL's larger peers, Tata Consultancy Services (TCS) and Infosys, about an uptick in technology spending. In sequential terms, HCL's net profit for the quarter was up by 16.3 per cent and its revenue grew at 8.1 per cent.

However, the volume growth at 3.9 per cent for the company, which has steadily increased its revenue in the past due to its focus on the renewal market, was lower than the 6.1 per cent recorded by TCS and 4.1 per cent by Infosys.

But the company could reap in the full advantage of a depreciating rupee against its peers for whom the positive impact of the currency was offset to a large extent by the negative impact of the wage hikes given during the June quarter. HCL, on the other hand, doles out increments only during the July to October period. The advantage was clearly felt in its operating income which expanded by 160 basis points to 21 per cent compared to the last quarter.

Anant Gupta, president and chief executive of HCL Technologies said while the deal renewal market was expected to remain quite strong till 2015, clients were also looking at transformational deals which included the discretionary spend now, apart from the non-discretionary element. “The momentum in the US and the European markets is very strong and we will continue to focus on these geographies.”  He added clients were also looking at bundling the traditional services with new age offerings such as analytics or cloud.

In his post-results note on HCL, Nimish Joshi of brokerage firm CLSA said in the last six quarters, HCL had closed the margin gap within the industry, while maintaining a better growth trajectory. “Everything points towards a healthy business momentum for now.” Dipen Shah, of Kotak Securities added its focus on the re-bid market had helped it significantly with infrastructure management services performing well.

The company’s stock closed at Rs 937.75, up 3.52 per cent on the BSE on a day when the broader Sensex closed almost flat.

While for most other information technology companies, the European market has been a challenge, for HCL it grew by 9.6 per cent. Revenue from the US grew 2.8 per cent. Growth for the company was also led by its infrastructure services division which grew 9.4 per cent.

The company, which follows a June to July year, also announced its annual results on Wednesday. While its net profit for the year stood at Rs 4,099 crore, up by 62.3 per cent against last year, its revenue grew  22.4 per cent at Rs 25, 734 crore. “Backed by another strong quarter, we closed our financial year on a positive note. Our net income margin expanded by 400 basis points and touched a five year high of 16 per cent. Our return on equity for the year has been 34 per cent which is amongst the best in the industry. Earnings Before Interest, Taxes, Depreciation and Amortization to free cash flow conversion has been at a healthy 68 per cent,” Chief Financial Officer Anil Chanana said.

The company’s board has also decided to increase the foreign institutional investor investment limit in the company from the existing 30 per cent to 49 per cent subject to regulatory approvals. It has also announced an average eight per cent wage hike for offshore employees and three per cent for those on onsite locations.