New Delhi: HCL Technologies Ltd posted a 72.6% jump in net profit for the three months ended 31 March, bringing cheer to the market after Infosys Ltd earnings disappointment last week.
Profit rose to Rs.1,040 crore from a year ago. Revenue rose 23.2% year-on-year and 2.4% sequentially to Rs.6,425 crore.
The earnings underscore some of the continuing challenges in the demand environment that were outlined by Infosys last week.
Non-discretionary spending and the renewal market is still driving growth, with clients still cautious on discretionary spending, which may be indicative of their risk-taking abilities despite talks of a recovery in the industry’s key market, the US, said HCL Technologies chief executive Anant Gupta.
The company got multi-year deals worth more than $1 billion in the quarter. Of these, 90% are from the “re-bid” market, HCL said in a statement.
“HCL has delivered yet another solid quarter,” CLSA analyst Nimish Joshi said in a note. “Everything points towards a healthy business momentum for now. In the last six quarters, HCL has closed the margin gap with erstwhile leader Infosys by approximately 1,200 bps (basis points) while maintaining a better growth trajectory.” One basis point is one-hundredth of a percentage point.
Growth in margins has come from better realization, efficiency and foreign exchange gains, the company said.
Infosys disappointed the market with sequential revenue growth in dollar terms at 1.4%, against expectations of at least 3%. It also forecast revenue growth in 2013-14 at 6-10%, less than the 12-14% estimated by the Nasscom industry lobby.
“Infosys’s poor quarter and guidance had raised some doubts on industry-wide demand. HCL’s performance and deal signings should somewhat allay those fears and support the sector sentiment which was low after the Infosys result,” Joshi said.
Concerns for HCL relate to almost all the growth being driven by infrastructure services, even as core software services growth remains challenged.
“Utilization has shot up to levels never seen before and there rightly remain concerns about sustainability of these high levels, which in turn could weigh on future margins,” he said. “Note that headcount has gone down yet again.”
The company has faced protests over delaying the absorption of people to whom it made job offers last year.
The stock ended 1.51% lower at Rs.751.15 apiece on BSE on Wednesday.