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Business News/ Market / Mark-to-market/  HCL Technologies makes up lost ground
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HCL Technologies makes up lost ground

The company reported constant currency revenue growth of 6.2%, the highest in the last 16 quarters

Deal wins continued to be strong, with the firm announcing new deals with a total value of $1 billion in the December quarter. Premium
Deal wins continued to be strong, with the firm announcing new deals with a total value of $1 billion in the December quarter.

HCL Technologies Ltd’s shares had underperformed the CNX IT index by about 10% in the past six months. Clearly, the company’s June and September quarter earnings hadn’t matched investors’ expectations.

But now, all is forgotten, what with the company’s December quarter results being far ahead of analysts’ estimates. The company reported constant currency revenue growth of 6.2%, the highest in the last 16 quarters. In dollar terms, revenue grew by 4%, compared with consensus estimates of growth of about 0.9%. HCL shares rose by nearly 9% on Friday, making up for most of the underperformance in the past six months.

Revenue growth had been subdued in the preceding two quarters, causing investors and analysts to be worried about the slow conversion of the company’s ever-growing order book into revenue. Analysts at Barclays Research had then said in a note to clients, “While we draw comfort from the company’s healthy order book, muted revenue conversion remains a cause of concern for us."

According to the company, in the current environment, large deals have become more complex, causing the transition period for such projects to be relatively longer. With some large projects now reaching steady state, revenue has started accruing at a faster pace. It’s also heartening to note that engineering and research and development (R&D) services grew 12.6% sequentially in constant currency terms. HCL has been saying the engineering services business is on the cusp of a revival—while it’s still early to say if the growth in the segment is sustainable, the performance in the December quarter is reassuring. After all, it also helps address the criticism that the firm in the past has been a one-trick pony, with infrastructure management services driving most of its growth.

The higher-than-expected growth also resulted in higher margins, despite the company making investments in sales and marketing. Analysts at Emkay Global Financial Services Ltd said in a post-results note to clients, “SG&A (selling, general and administrative) expenses increased to 12% of revenue in Dec. 2014 quarter, after declining as a percentage of revenue through every single quarter starting March 2013, which we believe is necessary for HCL Tech to continue progressing towards a better and balanced mix of revenues."

Deal wins continued to be strong, with the firm announcing new deals with a total value of $1 billion in the last quarter. What’s more, net staff addition numbers also suggested a sustained growth momentum. In this backdrop, it’s hardly surprising the earnings announcement has got investors excited.

The writer does not hold shares in the company mentioned above.

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Published: 01 Feb 2015, 07:55 PM IST
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