HCL Tech reported a better-than-industry 8.9 per cent growth in revenues for its core software services business in the June quarter. The company's performance in this segment had lagged that of the industry in the previous three quarters. | |
| In terms of year-on-year growth, however, the company continues to lag industry growth in the core software services business. Revenue growth in this segment was just 18.1 per cent last quarter, and 18.9 per cent for the year ended June 2005. |
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| Cumulatively, the top four IT companies, TCS, Infosys, Wipro and Satyam, grew revenues by over 30 per cent in the 12 months till June 2005. |
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| Despite this, the HCL Tech stock has outperformed NSE's CNX IT index in the past year, having risen by about 39 per cent y-o-y against the IT index's gain of 32 per cent. It's important to note that much of the stock's gains came in the last three months or so "" HCL Tech has been the best performing IT stock among top-tier peers since end-April. |
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| Earlier, HCL Tech was among the biggest IT underperformers. The markets seem have to accepted the fact that although the company's software services is growing at lower-than-industry rates, its BPO business (now 14 per cent of revenues) has driven growth. Overall growth in revenues, therefore, was much better at 27.2 per cent last financial year. |
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| What's more, the BPO business had an operating margin of 24.9 per cent last year, up from 11.5 per cent in FY04. Even the software services business reported a 200 basis points improvement in margin last year. As a result, operating profit grew by an impressive 44 per cent last year. |
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| The company has said revenues would grow between 30 per cent and 40 per cent this year, which is higher than industry growth expectations. On the other hand, it's important to note that revenues of the BPO business were flat last quarter on a sequential basis, which is worrying analysts since growth for the whole industry seems to have slowed down last quarter. |
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| Besides, thanks to HCL Tech's re-rating last quarter, its trailing PE is now 23.3 times, 8 per cent more than that of Satyam Computers. |
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| Petrokazakhstan |
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| China seems to have pipped India to the post yet again, with the Petrokazakhstan Inc board accepting the CNPC offer. At $55 a share, CNPC's bid was at a 21 per cent premium to the stock price, which doesn't look expensive, considering the stakes involved. |
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| Nevertheless, the fact that reports indicate that the Chinese bid was initially lower than the Indian one, and the $4.18 billion dollar bid was a revised one highlight the fact that one effect of the scramble for energy resources between India and China has been higher prices for oil stocks and assets. The Petrokazakhstan stock has more than trebled in the last three years. |
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| China has consistently been able to outbid India to take over stakes in oil assets in Indonesia and in Africa, but the bidding up of oil assets hurts both India and China, which is why we had the recent move for more co-operation between the countries. |
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| The bidding war for Petrokazakhstan is an indication that with both countries desperate for sewing up energy deals, co-operation is difficult to achieve, but it also illustrates that both parties could benefit by acquiring assets more cheaply. |
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| Yet another fallout could be increased criticism of ONGC's tie-up with Mittal. Mittal's considerable clout with the Kazakh authorities doesn't seem to have helped, and CNPC already has several projects in the country. |
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| And finally, the government needs to ask itself how Indian oil companies will be able to bid for assets abroad if they have to bear a huge subsidy burden at home. |
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| Tight money |
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| Why did interest rates start to go up last year? Did the Reserve Bank of India shift to a tightening stance? The data on money supply growth, juxtaposed with the growth rates of GDP at current prices illustrate how the RBI tightened monetary policy in 2004-05, leading to a rise in interest rates. |
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A glance at the table shows how loose monetary policy was in 2000-01, at a time when the corporate sector was in the throes of a recession. In that year, M3 growth was 16.4 per cent, more than twice the growth rate of GDP at current prices.
| ODD NUMBERS | (In %)
Year | (At current prices) | | GDP growth | M3 growth | | 2000-01 | 8.0 | 16.4 | | 2001-02 | 9.4 | 14.0 | | 2002-03 | 8.3 | 12.8 | | 2003-04 | 11.7 | 16.4 | | 2004-05 | 12.3 | 12.6 |
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| There was a bit of a tightening in the next year, with the M3 growth rate being higher than the GDP growth rate by 4.6 percentage points, compared with 8.4 percentage points in the previous year. Thereafter, the gap between M3 growth and GDP growth was more or less maintained till 2003-04. |
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| Last year, however, M3 growth at 12.6 per cent was only 30 basis points above GDP growth of 12.3 per cent at current prices. No wonder interest rates rose sharply last year. |
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| The data also shows how the surplus available with banks to pour into government securities, which was ample during the period 2000-01 to 2003-04, dwindled sharply last year. |
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| With contributions from Mobis Philipose and Amriteshwar Mathur |
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