HCL Tech Q2 profit jumps 16.7%; C. Vijaykumar promoted to top post

HCL’s second quarter revenue rose 1.6 % to Rs11,519 crore quarter-on-quarter, falling short of analyst expectations


HCL has also agreed to buy Butler America Aerospace, Llc, a provider of engineering and design services to US Aerospace and Defense customers, for $85 million in cash. Photo: Pradeep Gaur/Mint
HCL has also agreed to buy Butler America Aerospace, Llc, a provider of engineering and design services to US Aerospace and Defense customers, for $85 million in cash. Photo: Pradeep Gaur/Mint

New Delhi: HCL Technologies Ltd, India’s fourth largest information technology (IT) firm, on Friday reported that its net profit rose 16.7% year-on-year to Rs2,014 crore in the September quarter, fuelled by strong growth in its infrastructure services business and improved margins.

The firm also announced the elevation of its chief operating officer, C. Vijayakumar, to the top position in the company and the acquisition of a US firm.

The Noida-based firm’s second quarter revenue rose 1.6% to Rs11,519 crore quarter-on-quarter, falling short of analysts’ expectations. However, net profit beat expectations with gross margins improving to 33.6% from 33.2% a year ago.

In dollar terms, the firm reported a profit of $301 million and a revenue of $1.72 billion, which represented a year-on-year rise of 14.2% and 11.5% in constant currency terms, respectively.

A Bloomberg poll of more than 30 analysts had estimated a consolidated net profit of Rs1,969.4 crore and a revenue of Rs11,570.4 crore.

Infrastructure management services (IMS) continued to be a growth driver and revenue from the segment rose 4.4% sequentially, accounting for about 40% of total revenue in the quarter. “Growth should have been better and since their growth is mostly infrastructure-led, it worries me,” said Sanchit Vir Gogia, chief analyst and chief executive at Greyhound Research, an equity research firm.

HCL Tech said it signed up 12 new deals this quarter, including two that were $50 million-plus and one that was $100 million-plus.

The company also maintained its annual forecast of 12-14% revenue growth in constant currency terms, for the current fiscal.

The results come amid a rough quarter for the IT industry as India’s top two firms reported poor results over the week, raising concerns about growth in the rest of the year.

Tata Consultancy Services Ltd reported weaker-than-expected revenue in what has typically been a strong quarter for it, while Infosys Ltd also cut its full-year dollar revenue forecast for the second time this fiscal.

HCL Tech promoted Vijayakumar to the position of president and chief executive officer of the company to replace Anant Gupta, effective 20 October.

Vijayakumar, who was the president of the company’s infrastructure services till July, had been appointed COO to accelerate growth in the core business and has been with HCL Tech since 1994. The COO’s post was specially created to ease his transition to the top post.

“He (Vijayakumar) is a good hand. HCL is going through a change and the way deals are being constructed, with a greater digital element, you need a fresh pair of hands,” said Gogia.

In a separate announcement, former CEO Anant Gupta launched a Rs100 crore investment firm TECHCELX, to invest in start-ups focused on digital technologies such as machine learning, Internet of Things, artificial intelligence and analytics.

HCL Tech also announced its decision to buy Butler America Aerospace Llc., a provider of engineering and design services to US aerospace and defence customers, for $85 million in cash. Butler Aerospace had revenues of $85.4 million for the year ending 31 December 2015.

“Engineering and R&D is one of the strongholds of HCL Tech. So the acquisition sort of consolidates their position in the R&D space and the deal pricing also looks very good,” said Apurva Prasad, senior analyst, institutional equities, at HDFC Securities Ltd.

The deal is expected to add to the earnings after its closure in December 2016.

Reacting to the results, HCL Tech shares closed at Rs831.05 apiece, up 1.94%, on a day when the benchmark Sensex ended at 28,077.18, down 0.19%.

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