New Delhi: HCL Technologies Ltd, India’s fourth largest software exporter, on Wednesday posted a 3.6% rise in net profit to 1,683 crore for the three months ended March compared with the year-ago period, missing analysts’ expectations. Net sales rose 11% to 9,267 crore from last year.

Net profit fell 12.2% from the December quarter, during which the company had delivered its strongest performance in the past 16 quarters. Revenue fell 0.2% sequentially.

HCL shares plunged as much as 9.6% in early trade on BSE after the results were announced. But the stock recovered partly to close at 891.05, down 3.48% on BSE, while the benchmark Sensex fell 0.75% to 27,676.04 points.

In dollar terms, net income stood at $270 million, a 2.3% increase over a year ago, on revenue of $1.491 billion, which increased 9.5%.

A Bloomberg poll of analysts had estimated a net profit of $291.28 million on revenue of $1.501 billion. In rupee terms, net profit had been estimated at 1,820.90 crore on net sales of 9,383.6 crore.

The growth was broad-based “across geographies, verticals and horizontals", said Anant Gupta, president and CEO, HCL Technologies. “This quarter saw our revenue increase by 14.4% LTM (last twelve months) year-on-year in constant currency and we gained significant market share fuelled by transformational deal bookings in excess of $1 billion. These engagements were primarily driven from industries such as consumer services, manufacturing and public services and the European region."

The company also made “significant investments" in expanding its global footprint including opening several new onsite facilities and co-innovation labs in addition to expanding its existing presence in India, Gupta added.

“The operating margin metrics and enhanced working capital requirements have impacted our cash flows and are an outcome of our focused investment agenda for enhancing capability build-up and delivery dynamics of large engagements", said Anil Chanana, CFO, HCL Technologies.

Sanchit Vir Gogia, chief analyst and chief executive officer, Greyhound Research called HCL numbers “a mixed bag". “On the positive side, the overt reliance on IMS is slowly expected to reduce over time, and increasing exposure to Europe is a worry since the geo remains volatile. This has been a tough quarter for nearly everyone in the industry, but the HCL results is a classic case of the dark cloud with a silver lining."

HCL’s planned focus on application services business will be welcomed by investors, Gogia said.

“In terms of the geo spread, while HCL has been decreasing reliance on the US market, increasing exposure to the European market is only worrying given the fluctuations in exchange rate in Euro and GBP. Outside of financial services, nearly all other revenue-heavy verticals either remained muted or the revenue contribution declined from Q2 FY15," Gogia said.

During the quarter, HCL signed 14 deals with total contract value of over $1bn, in line with its momentum in the past few quarters. “While HCL Tech reported performance for Mar’15 quarter is below estimates, we note that the underlying metrics for HCL Tech remains OK both in terms of deal wins, client metrics supported both by healthy headcount addition for the 3rd quarter in a row and SG&A (Selling, General and Administrative Expenses) increase to the highest level in the past quarter," Emkay Global Financial Services said in a note.

Chanana said the currency “did hit the revenues by 270 bps points majorly coming from Euro and GBP and Australian dollar."

“We have been stepping up our investments, which have been in the Internet of Things (IoT), engineering side and total outsourcing side. These investments have been made to grow these businesses," Chanana said. “On EBIT side, we had a 60 bps impact on the margins. Outside that, we had 190 bps impact which went into the investment."

The company added 3,944 people in the March quarter taking the total headcount to 104, 184.

“Our capex investment came in line with 3.5% in the range at which we are operating currently," Chanana said.

Performance on the hedges has been “fairly satisfactory" in spite of the huge volatility in currency, according to Chanana.

“We had $1.4 billion in hedges slightly more than what we had last quarter," Chanana said. “In the next quarter, we will be getting benefits on the account of hedges if the currency rates continue to be what they were as of March end."

Analysts feel that the company maintained strong clientele addition on the business front like previous quarters.

It added one client both in $50 million plus and $30 million plus bracket, while clients were up by four in $20million plus range.

“The company, posted revenue of US$1,491 mn versus US$1,507 mn expected, almost flat with 0% qoq, mainly impacted on back of the cross currency. In rupee terms, the revenue, came in at -0.2% qoq to 8,349 cr vs 9,376 cr expected," said Sarabjit Kour Nangra, VP Research—IT, Angel Broking. “EBITDA margins came in at 22.5% versus 25.0% expected, a dip of 250 basis points qoq."

The utilisation levels have also dipped to 81.9% as compared with 82.9% in second quarter of fiscal 2015, she added.

Last week, India’s largest software services company Tata Consultancy Services Ltd (TCS) reported a 12.4% rise in fourth-quarter revenue to 24,220 crore from a year ago. Excluding the payment of 2,628 crore as one-time bonus to its employees to mark 10 years since the company started trading publicly, the profit for the quarter ended March rose 11.5% to 5,906 crore, beating analyst estimates.

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