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HCL posts 78% jump in net profit in Sep quarter

The stock rises after the company’s better-than-expected performance in the September quarter
Surabhi Agarwal Mail MeTwitter
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First Published: Wed, Oct 17 2012. 09 17 AM IST
HCL said consolidated net profit rose to `885 crore from `497 crore for the year-earlier period. Photo: Ramesh Pathania/Mint
HCL said consolidated net profit rose to Rs.885 crore from Rs.497 crore for the year-earlier period. Photo: Ramesh Pathania/Mint
Updated: Thu, Oct 18 2012. 12 38 AM IST
New Delhi: HCL Technologies Ltd reported a 78.1% increase in net profit at Rs.884.8 crore for the three months ended September from Rs.496.7 crore a year earlier as it moved more work to cheaper locations and benefited from favourable currency movements.
But chief executive and vice-chairman Vineet Nayar warned the macro-economic situation remains challenging.
HCL expects clients to either trim or maintain their technology budgets and has placed its bets on the so-called “churn market” that’s estimated to be worth about $40 billion (around Rs.2 trillion today) in the second half of 2012, according to consultancy firm TPI, Nayar said.
“The discretionary spending is going through a huge amount of evaluation, so it’s the marketshare churn which will drive growth and not expansion of IT (information technology) budgets,” Nayar said.
This trend, he said, is expected to continue till 2014.
Business from the US and European markets grew 4% and 2.7%, respectively, from the preceding three months as HCL added 38 clients and won 12 multi-year, multi-million deals during the quarter.
The company reported its highest volume growth in the past 12 months at 4.5%.
Net profit rose 3.6% sequentially.
Revenue rose 2.9% sequentially and 31% from a year earlier to Rs.6,091 crore. Per-share earnings rose 70.1% to Rs.49.1 year-on-year.
Chief financial officer Anil Chanana said higher operating profits coupled with efficient management of working capital had led to a 27% return on equity on a 12-month basis. “We continue to convert more than 100% of the net income to operating cash flow on last 12 months basis,” he said.
HCL disbursed a portion of its annual wage increase during the quarter but it gained as rupee’s average rate to a dollar swung from 46.40 in the September 2011 quarter to 54.70 in the latest quarter. And moving work to cheaper locations helped shore up operating margin by 1.8%.
The resurgence of HCL’s stock has been driven by its strong revenue growth and an improving margin performance, Nimish Joshi, analyst with brokerage CLSA Asia-Pacific Markets, wrote in a note on 17 October.
“However, growth has now softened to 11% year-on-year from over 25% year-on-year just a year back even as erstwhile conservative peers like Infosys are warming up to be more aggressive in the large deals market (hitherto a domain of HCL and TCS),” he wrote.
On Friday, India’s second largest software services provider, Infosys Ltd, reported a lower-than-expected profit for the three months ended September, and provided a weak forecast for the outsourcing business citing economic uncertainties in its top markets—the US and Europe. It lowered its revenue growth forecast for fiscal 2013 to 17.3% from 19.7%.
The country’s largest software services company, Tata Consultancy Services Ltd (TCS), largely considered the bellwether for the sector, will announce its earnings on 19 October.
Its smaller rival Wipro Ltd will release its financials on 2 November.
Shares of HCL Technologies slipped 0.68% to Rs.580.30 on BSE on Wednesday after earlier gaining 4% to touch a 12-month high of Rs.605.75.
The benchmark Sensex index ended 0.18% higher at 18,610.77 points.
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First Published: Wed, Oct 17 2012. 09 17 AM IST