 "HCL Tech beats Street with broad-based growth")
Backed by broad-based growth across service lines and verticals, HCL Technologies’ net profit rose 59 per cent year-on-year to Rs 1,624 crore during the quarter, while its revenue increased 29.8 per cent to Rs 8,349 crore. On a quarter-on-quarter basis, net profit was up 8.5 per cent, while revenue increased two per cent.
In dollar terms, the Noida-based company’s net profit stood at $264 million, up 39.9 per cent year-on-year and 9.4 per cent sequentially, while revenue stood at $1,361 million, a rise 14.3 per cent on an annual basis and three per cent on a sequential one.
This is the eighth consecutive quarter for which the company saw revenue growth of more than three per cent, in dollar terms.
“HCL Tech came out with a better-than-expected set of results, largely on all fronts, signalling the likelihood of a stronger year ahead,” Ankita Somani, research analyst (IT), Angel Broking, said in a note. She added the three per cent sequential growth in dollar revenue was led by strong five per cent quarter-on-quarter growth in infrastructure management services (IMS), which account for about a third of the company’s overall revenue.
“Excluding IMS, the company’s revenue growth had become a concern in the past. In this quarter, the company shrugged that off, registering two per cent sequential growth in dollar revenue in that (non-IMS businesses),” she added.
During the March quarter, the company’s performance was supported by 2.9 per cent volume (billed man-hours in a quarter) growth. The operating profit margin increased 70 basis points sequentially to 26.7 per cent, primarily on account of cost-rationalisation measures.
During the March quarter, the company won 12 major transformational deals and saw volume growth of 2.9 per cent.
Compared to its larger peer Infosys, which sounded caution and estimated revenue growth of seven-nine per cent for 2014-15, the HCL Technologies management said it was confident of strong growth in the coming quarters, amid a fairly robust pipeline and expectations of good deal flow. “We see a robust pipeline, mainly from the US and Europe,” Gupta said. “Among verticals, financial services, life sciences and manufacturing look bullish, while telecom is seen a little subdued. Other than telecom, all verticals look robust.”
Service lines
During the March quarter, the company’s performance was backed by strong growth in two of its largest service verticals — application services (45 per cent of revenue) and infrastructure services (34 per cent of revenue). Infrastructure services grew a robust five per cent quarter-on-quarter, while application services saw 2.9 per cent growth.
The company said it remained focused on maintaining its position as a “formidable major” in the infrastructure services segment, in which 80 per cent of its wins were now against global peers, not just Indian competitors. “The demand growth for infrastructure services was strong in the third quarter and we have a strong pipeline for it,” Gupta said.
Among other service segments, engineering and research & development, which contributes 17 per cent to the company’s overall revenue, grew a tepid 0.1 per cent. Business services (4.5 per cent of revenue) saw a 1.3 per cent decline compared to the previous quarter.
Verticals and regions
During the March quarter, manufacturing, HCL Technologies’ largest business vertical, grew 2.1 per cent sequentially, while financial services, the company’s second-largest business vertical, saw strong 6.4 per cent growth. The public services vertical saw 14 per cent sequential growth, while retail and consumer packaged goods grew 2.7 per cent.
By regions, the rest of the world (excluding the Americas and Europe) market saw 10.4 per cent sequential growth, primarily due to execution of a large order. This market accounts for 13 per cent of the company’s overall revenue.
The two largest markets, the Americas and Europe, grew 0.4 per cent and 4.8 per cent, respectively.
“There is no concern on the muted growth in Americas this quarter,” Gupta said. “What we are seeing in Europe is latent demand is now coming into the market.”
Americas and Europe account for 55 per cent and 32 per cent of the company’s revenue, respectively.
Employee metrics
Attrition rose 30 basis points sequentially to 16.9 per cent in the March quarter, against a marginal decline seen by larger peer TCS during the same period. At 11.3 per cent, the attrition seen by TCS in the March quarter was one of the lowest in the sector.
At 84.2 per cent, employee utilisation at HCL Technologies was the highest among all its peers. For the March quarter, Infosys’ employee utilisation stood at 74.4 per cent, while TCS’ was 77.9 per cent.
HCL Technologies gross-added 8,291 employees in the March quarter.