HCL Tech’s strong Q2, margin outlook lift shares

HCL Tech’s strong Q2, margin outlook lift shares

New Delhi: Software services firm HCL Technologies posted a better-than-expected net profit for October-December, and said its margins will improve in the next two quarters riding on higher utilisation.

Reacting to the earnings, shares in the company surged as much as 6% to hit a 52-week high of Rs517.50, even as the broader market dropped 0.6% and BSE IT index 1.18%.

“We made significant investment in SG&A (selling, general & administrative). Realisation from these investments will flow (in the second half)," chief financial officer Anil Chanana told reporters.

The expected improvement will come even as Indian software services companies face a hit from high attrition rates and wage inflation.

Chanana expects EBIT (earnings before interest and taxes) margins to go up by more than 200 basis points by the end of this fiscal year, from current levels of 13.1%.

HCL Technologies may look at divesting some of the existing businesses in the next five years, chief executive Vineet Nayar said.

“If you look at it, our services mix is not great. 2015 will need utilities. We will need to transform the way we do some businesses," Nayar said.

He said HCL’s loss-making business process outsourcing unit should turn profitable by the March quarter of 2012.

Chanana said the company plans to spend $70 million for the second half of the current fiscal year, compared with about $90 million they spent in the first half.

Earlier on Wednesday, HCL Tech reported a net profit of about Rs400 crore for Oct-Dec, while revenue rose 28% to Rs3890 crore. Profit was expected to rise 24% to Rs368 crore, according to a Reuters poll of 15 analysts.

The company also said its business outside the US and Europe, its biggest markets, rose more than 60%.

Last week, Infosys Technologies sparked concerns about the outlook for India’s showpiece outsourcing sector after it missed estimates for profit and future sales growth and warned of sluggish global economic growth, lowering expectations from other IT companies.

However, Tata Consultancy Services, India’s top software services exporter, on Monday beat forecasts with a 30% rise in quarterly profit and said it expected strong demand for outsourcing services, easing the concerns somewhat.

Net employee addition for the period for HCL Technologies stood at 2,049, taking the total headcount to 72,267.

Attrition rates at Indian IT firms spiked towards the end of the last financial year as companies loosened IT budgets after the downturn and resurgence of demand left IT companies scrambling for trained workforce.