Steady deals, Rupee help HCL Tech beat Street

HCL Technologies, India’s third-largest IT services company, on Wednesday surprised the Street by posting a 78% year-on-year jump (4% sequentially) in its first quarter net profit at Rs885 crore on account of rupee depreciation, higher offshore utilisation and steady deal flows.

Coming after a spate of dismal industry results, the numbers sent the HCLT stock to a 12-year high, which rose 3.83% intra-day to Rs606.9, a level last seen in March 2000.

Consolidated revenues during the July-September quarter were up 31% at Rs6,091 crore.

In dollar terms, net profit rose 52% to $162 million, while consolidated revenues grew 11.1% at $1,114 million.

Analysts were expecting HCLT to be hit by the wage hikes given out in July and cross-currency headwinds. 

Anil Chanana, chief financial officer, HCLT, said, “The performance was helped by rupee depreciation, which gave 20 basis point boost to Ebitda. The quarter also saw a higher offshore utilisation benefit of 180 bps. These factors helped offset the 80 bps impact of wage hikes on margins.”

In Q2, however, the impact on margins would be 100 bps when the second round of wage hikes will kick in, Chanana said.

HCL does not provide any guidance, but is confident of sustained growth going forward on the back of a stable pricing environment. But  analysts said that rupee appreciation may result in poorer performance in Q2.

Vineet Nayyar, vice-chairman and CEO, HCLT, said most growth is expected to continue to come from US and Europe, which are seeing an 18% and 17% yoy growth, respectively.

During the reporting quarter, US and Europe grew by 4% and 2.8%, respectively, as against 2.2% and 4.7% growth for Infosys.

Ankita Somani of Angel Broking, said, “HCLT yet again reported strong set of results. The dollar revenues grew by 3.2% qoq in line with estimates, led by 10.4% qoq dollar revenue growth in one of its core area of infrastructure management services (IMS). Volume growth was robust at 4.5% qoq. HCL Tech is strongly positioned in the EAS and IMS verticals, which places it well for short-term as well as long-term growth.”

HCLT added 1,016 employees in Q1, while attrition was down marginally to 13.4% from 13.7% a year ago. Utilisation was at 74.2%.

Rikesh Parikh, VP-markets strategy and equities, Motilal Oswal Securities, said, “We maintain our positive view on stock and it remains one of the preferred pick in technology sector. The management has indicated a pipeline of large deals over the next six months. With a win deal ratio of over 50% for the current quarter, growth visibility remains.”

The company said it was on track to create 10,000 jobs over five years in the US and Europe, since as increasing local presence was crucial for profitability.

Daljeet Kohli, head of research, IndiaNivesh Securities, said, “HCLT in well positioned to capitalise on the growth opportunity. However, continuity of similar performance looks difficult (muted IT volume growth) in such uncertain environment.”