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HCL Tech beats street expectations; stock rises

HCL Tech’s steady rise in profitability has helped its stock outperform peers by a huge margin in the past year
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First Published: Thu, Jan 17 2013. 10 08 AM IST
HCL Technologies also announced deal wins amounting to more than a billion dollars in value during the quarter, which will reassure investors about the sustenance of growth in the future. Photo: Pradeep Gaur/Mint
HCL Technologies also announced deal wins amounting to more than a billion dollars in value during the quarter, which will reassure investors about the sustenance of growth in the future. Photo: Pradeep Gaur/Mint
Updated: Thu, Jan 17 2013. 04 48 PM IST
HCL Technologies Ltd’s stock was the top gainer among Nifty stocks on Thursday morning, after the company reported better-than-expected results for the December quarter. Revenue rose 3.6% sequentially to $1154 million and profit margin expanded, leading to a 5.5% rise in earnings before interest, tax, depreciation and amortization to $260.6 million.
Analysts at JPMorgan and Kotak Institutional Equities had estimated that profits would drop owing to the salary hikes given by the company last quarter and as well as due to an increase in selling and marketing investments. While selling and marketing expenses rose as a percentage of sales, other cost efficiencies helped the company expand Ebitda margin by 40 basis points (bps). This is the third straight quarter that margins have increased sequentially; on a year-on-year (y-o-y) basis, HCL’s margins have risen by 410 bps. A basis point is one-hundredth of a percentage point.
The steady rise in the company’s profitability has helped its stock outperform peers by a huge margin in the past year. HCL shares’ have risen by 66% in the past year, compared with a 13% rise in the CNX IT index. Earlier, the company’s low profit margin was a constant irritant for investors and led to low valuations.
Of course, this has come alongside decent revenue growth. In the December quarter, revenues grew by 13% in dollar terms on a y-o-y basis. Again, growth was led by infrastructure services, which grew by 37% on a y-o-y basis. The company also announced deal wins amounting to more than a billion dollars in value during the quarter, which will reassure investors about the sustenance of growth in the future.
All this led to a 6.4% rise in the company’s shares on Thursday morning, with investors even taking in their stride the announcement that Vineet Nayar, chief executive officer and architect of the current growth momentum, will be stepping back from an active operational role.
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First Published: Thu, Jan 17 2013. 10 08 AM IST
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