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HCL Tech’s revenue rises but firm says market uncertain

HCL Tech’s revenue rises but firm says market uncertain
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First Published: Wed, Apr 20 2011. 11 27 PM IST
Updated: Wed, Apr 20 2011. 11 27 PM IST
New Delhi: HCL Technologies Ltd announced a 4.8% growth in revenue (in constant currency terms) for the three months ended 31 March, as compared to the preceding three months and, in the process, brought some cheer to the stock market which proclaimed its disappointment at the weak numbers of India’s second largest software services firm Infosys Technologies Ltd by beating down stocks of most technology firms.
Infosys posted a 1.1% growth in revenue for the three months ended 31 March as compared to the previous three months.
HCL also posted impressive operating profits with its earnings before interest and taxes rising 16.2% in the quarter as compared to the quarter ended 31 December. HCL posted revenue of $915 million for the March quarter, and a net profit of $103 million.
Nimish Joshi of CLSA Asia-Pacific Markets said in a report on the company published after the results that HCL’s sequential revenue growth in dollar terms of 5.8% “is above street expectations and should allay investor concerns, especially after the big miss at Infosys”. India’s largest IT services company Tata Consultancy Services Ltd will announce its financials for the March quarter on Thursday.
Despite the robust set of numbers, Vineet Nayar, vice-chairman and CEO of HCL Technologies struck a cautionary note about the environment. “We are seeing smaller deals and more projects and less of large end to end transformation deals... The market is very dynamic right now and is becoming hard to predict,” he said. “This is not party time for sure... US is just post-recession, some countries of Europe are still struggling and there are microeconomic concerns because of Japan; so it’s a mixed bag and the overall IT spending it still flattish.”
HCL is growing due to its strategy of not being too dependant on one business or market, Nayar added.
The firm added 12 new clients during the quarter and around 7,500 new employees; it now has 73,420 employees. Its diluted earning per share for the quarter was $0.59, a growth of 34.1% year on year and 15.7% sequentially.
Markets outside the US and Europe, grew 20.5% for the firm during the quarter, with most of the growth coming from the Asia-Pacific region. The firm’s US business grew by a meagre 0.7% while its European one grew 4.2%.
An analyst pointed out that HCL's inability to translate growing revenue into healthy profitability seems to be at an end. Over the past few quarters, the company’s strategy of hiring experienced employees (therefore, more expensive) instead of campus recruits and investments in back office services, more global centres, and sales and marketing had led to depressed margins.
“Through the last 18-24 months, HCL has traded growth for margins. However, some of those sacrifices seem to be paying back now as growth has been accompanied by margin improvement,” said Joshi.
Anil Chanana, chief financial officer, said HCL had set itself a target of reaching an Ebit (earnings before interest and taxes) margin of 15.3% by the June quarter, and said the firm is on track to meet this. “While we have no doubt about HCL’s ability to improve another 100 basis points sequentially in June 2011, we remain worried about street expectations of 100 basis points margin improvement for financial year 2012,” added Joshi.
Shares of India’s fourth largest IT services firm closed 9.93% higher at Rs 522.85 each on the Bombay Stock Exchange after the results announcement on a day the exchange’s bellwether Sensex index rose by 349.15 points to close at 19,470.98.
Dipen Shah of Kotak Securities said in a statement after the results, “The stock is available at a discount to its larger peers and consistent performance in the future may provide decent upside to the stock price.”
surabhi.a@livemint.com
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First Published: Wed, Apr 20 2011. 11 27 PM IST