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HCL Tech pulls off eighth straight quarter of margin surge

Friday, 18 October 2013 - 10:22am IST | Place: Mumbai | Agency: DNA

HCL Technologies (HCLT), India’s fourth-largest software services provider, saw its net profit grow 18.7% sequentially to Rs1,416 crore in the July-September quarter, notching up its eighth straight quarter of operating margin expansion. Its revenues rose 14% qoq to Rs7,961 crore. The company, which follows a June-to-July cycle, reported a 63.8% jump in net profit and a 31.2% rise in revenues on an annual basis. In terms of dollar revenues, the figure was up 3.5% q-o-q at $1,270 million.

Dhananjay Sinha, head, research and strategist at Emkay Global Financial Services, said, “HCL Tech result was above expectations. A decline in selling, general and administrative expenses (SG&A) by 80 bps to 12.7% as percentage of sales helped significant improvement in margins.

Ebitda margin expanded 310 bps qoq at 26.3%. With this, HCLT margin has superseded margins of Infosys.”

Shiv Nadar-led (pictured) HCLT lagged peers in terms of volume growth at 3.6%, which is half of TCS’s 7.3% and a tad below Infy’s 4%, and is also less than its own 3.9% recorded last quarter.

This was mainly on account of a muted growth of its IT services revenues (1% in Q1), and its BPO revuenes that grew 3.5%. IMS vertical, however, continued to lead revenue growth with an 8.7% jump in the review quarter.

Dipen Shah of Kotak Securities said, “The company will have to improve the growth rates in the IT services business to sustain and improve the growth rates in overall revenues, going ahead.”

Despite staggered wage hikes of 8% for offshore and 2-3% for onsite employees given out in the quarter, HCLT’s Ebitda margin gained 300 basis points, up 23.8% q-o-q. This was on account of a 250 bps gain due to the recent rupee depreciation and a 50 bps operational efficiency on account of 54% gains from the fixed price model followed by HCLT on managed services.

According to CFO Anil Chanana, HCLT’s layered hedging policy is also helping.

In terms of deal pipeline, Chanana said it was much stronger than the first half, and the company reported nine transformational deals in the quarter in excess of $1 billion. HCLT, which has Nokia as a major client, also said there would be no impact to signed contracts on account of its merger with Microsoft. The recent US shutdown is also not expected to impact HCLT, which has no projects from the federal government.


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