Quarterly results analysis : March 2003
HCL Technologies
Meagre volume growth adds to woes
HCL Tech's organic software services revenues fell 5.2 per cent sequentially (quarter-on-quarter). Although the main reason for this was a 4.8 per cent fall in billing rates which came mainly due to pricing pressure from new clients, the fact that volumes grew just 0.3 per cent q-o-q is also not a healthy trend.
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Especially because the company's peers have been reporting strong volume growth throughout last year. For HCLT, which has its financial year ending in June, the first nine months of the current fiscal saw revenues of its core business growing by just 3.5 per cent year-on-year.
According to the company, the flat trend was the after-effect of a client rationalisation programme undertaken by the company during the fiscal, which saw the disengagement of 84 clients.
However, even if one were to add back the revenues lost on account of the client rationalisation programme, revenues would have grown at just around seven per cent, which is much lower than the over 20 per cent growth recorded by its peers.
While the company's dependence on the technology sector is one reason, some analysts feel that the new initiatives taken by the company have resulted in less management time for the core software services business. Coming back to last quarter's results, the 26 new clients of the company in the March quarter came in at rates lower than the current average billing rate.
Surprisingly, despite lower billing rates, operating margin didn't fall much leading to a 7.4 per cent sequential decline in operating profit.
The consolidated results have a better look - sales of the consolidated entity declined 0.45 per cent in last quarter, while net profit fell 0.81 per cent