BackHCL Tech shares drop over 9% on missing revenue forecast
In dollar terms, HCL's net income stood at $307 million on a revenue of $1.433 billion
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New Delhi: A day after Tata Consultancy Services Ltd (TCS) posted results that disappointed the Street, HCL Technologies Ltd shares fell as much as 9.6% on Friday, as it missed revenue forecast by analysts.
HCL Technologies, India’s fourth largest software exporter, posted a 32% rise in net profit to ₹ 1,873 crore for the three months ending 30 September. Net sales rose 10% to ₹ 8,735 crore.
In dollar terms, net income stood at $307 million, a 36% increase over last year, on a revenue of $1.433 billion, which grew 13%.
Analysts were, on average, expecting the company to post consolidated net profit of $285.45 million on a revenue of $1.44 billion for the quarter, according to a Bloomberg poll of analysts. In rupee terms, net profit was estimated at ₹ 1,753.4 crore on net sales of ₹ 8,815.1 crore.
Sequentially, in dollar terms, net income grew by 0.6% over the June quarter, while revenue went up by 1.9%.
HCL Technologies’ chief executive Anant Gupta said, “We have posted another healthy quarter of broad-based growth led by a revenue increase of 3.2% quarter-on-quarter in constant currency. Our customer acquisition momentum continues with yet another billion-dollar quarter driven by strong growth in global infrastructure services at 16.9% year-on-year (growth), and engineering and R&D services at 14.1%. We have also added 15 Fortune 500/global 2,000 clients this quarter."
“Going forward our investments will continue in the three strategic markets of ITO (information technology outsourcing), engineering services outsourcing and the emerging digitalization space which will enable a continued balanced business portfolio performance for the company," he added.
On Thursday, India’s largest software services exporter Tata Consultancy Services Ltd (TCS) reported lower-than-expected growth in its rupee profit and revenue for the three months ended 30 September from a year ago. The company’s net profit rose ₹ 5,244 crore in the September quarter, up 13.2%, on a revenue of ₹ 23,816 crore, which rose 13.5% from ₹ 20,977 crore a year ago. Last week, India’s second-largest software services exporter, Infosys Ltd, reported higher-than-expected 28.6% increase in fiscal second quarter net profit to ₹ 3,096 crore on a revenue of ₹ 13,342 crore.
“(HCL Technologies’) results were below estimates. Revenues disappointed with a constant currency growth of 3.2%. Ebitda (earnings before interest, taxes, depreciation, and amortization) margins also came in slightly below expectations," said Dipen Shah, head - private client group research, Kotak Securities. “The constant currency growth has moderated in past few quarters and overall revenue growth has come in largely on the back of IMS (infrastructure management services). The company needs to improve growth rates in non-IMS businesses."
Ankita Somani, research analyst at MSFL Research, Institutional Business Group, said, “HCL Tech reported Q1FY15 results with top line coming in softer than estimates for two quarters in a row," said Ankita Somani, research analyst at MSFL Research, Institutional Business Group. “Revenue was softer than expected, but operating margins were marginally ahead of estimates. Dollar revenues grew by just 1.9% quarter-on-quarter to $1433 million, with cross currency headwinds taking away ~120 basis points from CC (constant currency) USD revenue growth." One basis point is one-hundredth of a percentage point.
“HCL Tech’s Ebitda margin declined sequentially by ~122 basis points quarter-on-quarter to 25.1% because of full quarter wage hike impact. PAT (profit after tax) stood tall at ₹ 1,874 crore, up 2.2% on a quarter-on-quarter basis, aided by other income (net of forex gain/loss) of ₹ 305 crore as against gain of ₹ 158 crore in Q4FY14," said Somani. “We expect stock to witness correction in the short term owing to the fact that the company has registered muted growth in seasonally strong quarter for Indian IT companies and lags behind peers like TCS and Infosys. We remain positive on the stock for a longer-term perspective keeping in notice the company’s deal signing trajectory and healthy operating performance since last several quarters."
However, Sanchit Vir Gogia, chief analyst and chief executive officer, Greyhound Research, said, “HCL’s performance has exceeded the market expectations. It’s showing signs of healthy growth, but not industry leading as yet. This quarter, too, HCL has posed with revenue growth of 3.2% quarter-on-quarter. While HCL is continuously striving to create a strong foothold in the digital space, Greyhound Research is of the opinion that it’s best if HCL focuses on services and verticals which haven’t been generating profits for the company. Traditionally weak on the application services, the investor community is looking at improving account management."
“The company holds a strong foothold in infrastructure management which has been generating a steady stream of revenue for the company. The utilization rate at 82.7% is a healthy rate as per industry standards. Attrition is likely to increase at HCL this quarter," Gogia added.
Shares of HCL Technologies fell 9.09% to ₹ 1,505.55 apiece on BSE, while the benchmark Sensex gained 0.42% to 26,108.53.
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