HCL Technologies Q1 profit declines 13.5% at ₹2,220 crore

In terms of revenue growth, the IT major posted a revenue growth of 4.2% quarter-on-quarter and 17.0% year-on-year in constant currency terms, which according to C. Vijayakumar, President & CEO, HCL Technologies is a historic peak performance. "With our current momentum, we aspire to register an industry leading organic growth in FY20. While our margins this quarter were muted in line with our investment strategy to leverage future growth opportunities, I am confident that our time-tested operating model will deliver margins within our guided range this year," he said in a press statement.

The company said the 17% Y-o-Y growth was led by double digit growth across its three segments: IT and business services grew 18.1%, products & platforms 15.2%, engineering and R&D services 13.3% (on Y-o-Y constant currency basis).

In terms of future guidance, the management expects HCL Tech to grow between 14.0% to 16.0% in constant currency for financial year 2019-20. The revenue guidance is based on FY19 (April to March) average exchange rates. The above constant currency guidance translates to 13.3% to 15.3% in dollar terms based on June 30, 2019 rates.

In December 2018, HCL Technologies announced the decision to acquire IBM software products for a total of $1.8 billion that was closed only at the end of the June quarter.

Sanchit Vir Gogia, CEO of Greyhound Research, said: "The decision by HCL Technologies to acquire software from IBM is part of the company’s attempt to be IP driven and drive growth on the back of it. While in theory this bold move is a step in the right direction and supposed to act as a shot-in-the-arm for HCL, but the ground reality is that these IBM products come with a ton of baggage that can potentially throw a spanner in the works." He added that developing and scaling standalone SaaS (software as a service) products will require a net-new approach from HCL Technologies and the one key change that HCL Technologies must bring in, is to appoint country and vertical specific resellers for this new software to ensure it continues to add on the customer base and add to the revenue stream.

In other highlights, HCL launched ‘HCL Software’, a new business unit that will providemodernized software products to businesses to help them transform their environment and completed the acquisition of digital transformation consulting firm Strong-Bridge Envision (SBE). According to brokerage firm Reliance Securities, these investments will bear fruit over the next few quarters, driving revenue/profit growth.

In terms of hiring, the company added 16,332 people (gross) and 5,935 staff (net) during the quarter to take its total head count to 1,43,900 at the end of the June 2019 quarter while attrition in the IT services business on the past 12-month basis stood at 17.3% which the company expects to come down in the coming quarters.