Home / Companies / HCL Tech revenue rises 1.4%, faster than rivals

Bengaluru: HCL Technologies Ltd on Tuesday beat larger rivals with a better-than-expected 1.4% sequential increase in its second-quarter dollar revenue even as concerns linger over a sustained growth momentum in some of its core businesses.

India’s fourth-largest software exporter outpaced its larger rivals Tata Consultancy Services Ltd (TCS), Infosys Ltd and Wipro Ltd which all reported slower than 1% growth in the December quarter, citing seasonal weakness due to holidays at the end of the year, and a flood that inundated Chennai, forcing many technology companies to suspend operations at their software development centres for a few days.

“Earlier this quarter, we faced the challenging Chennai situation. Our resilient business models, robust business continuity and disaster recovery practices, coupled with tremendous support from our clients and employees helped us face the challenge extremely well," president and chief executive Anant Gupta said in a statement.

For the second quarter ended on 31 December, the company reported a 10% sequential rise in net profit to $291 million on revenue of $1.57 billion. The numbers for the July-September quarter included a one-time provision of $18.2 million that the company made to cover the cost of the work it performed for a client. In constant currency, revenue grew 2.1%.

A Bloomberg poll of 30 analysts expected the company to report a net profit of $270 million. A survey of 32 analysts forecast revenue of $1.54 billion.

Its net profit in rupee terms grew 11% sequentially to 1,920 crore, while revenue grew 2.4% to 10,341 crore.

The soft pickup in October-December comes in the backdrop of a sharp deceleration in the July-September quarter when tepid revenue growth crimped net profit amid delays in taking off some of the large outsourcing deals in the infrastructure services business it signed up previously.

HCL, which had been growing at a breakneck pace over the last several years mostly by grabbing outsourcing deals that come up for renewals, saw growth waning in the last year, amid a persistent weakness in the infrastructure services business that accounts for more than one-third of the revenue. That, aside from the company’s inability to convert a large order book worth billions of dollars into revenue, has raised concerns among investors and analysts about the credibility of its numbers.

The latest quarter saw the infrastructure services segment attempting a comeback with a 3.4% sequential revenue growth in constant currency. Still, revenue from engineering and research and development, another core business that accounted for nearly a fifth of the total revenue, fell 1.5%.

Analysts remain shy of calling the latest quarter revenue growth a strong rebound. “Engineering and R&D, and infrastructure services are clearly the growth drivers for HCL. In the past, the company has reported up to 10% revenue growth in the infrastructure services business. The latest quarter number pales beside that kind of growth," said a Mumbai-based analyst with a foreign brokerage who declined to be named.

Still, HCL remained bullish about the prospects of the renewal market in infrastructure business. “Based on market data, we expect contracts worth $50 billion in total value to be coming up for renewal between 2016 and 2017. As a strong player in this space, we are well positioned to participate and win a good share of this," said C. Vijayakumar, the head of infrastructure business for HCL.

HCL said it booked over $1 billion in total contract value—including 8 large outsourcing deals—in the just-ended quarter, of which roughly 70% were those deals that came up for renewal.

Operating margins expanded 60 basis points from the previous quarter to 20%, though it remained below the 21% to 22% range the company has previously forecast.

On Tuesday, the price of HCL Tech shares closed at 838.5 falling 0.58% while the benchmark Sensex rose 1.21% and closed at 24,479.84.

Revenue from the Americas region, which accounted for roughly two-thirds of the total business, grew a robust 5.5%, while the rest of the business which included Europe and the rest of the world declined 2.4% and 3.4%, respectively.

In the last quarter, the company did not add any new clients that would generate more than $100 million in revenue. It added one new client that will generate over $50 million and two clients with over $40 million.

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