HCL Tech posts double-digit revenue growth in Q1; net profit falls 8%

IT services company HCL Technologies posted double-digit revenue growth numbers in the first quarter of this financial year, though its profit and margin came below market estimates. The Noida-headquartered firm also maintained its revenue guidance of 14-16 per cent in constant currency term and margin guidance of 18.5-19.5 per cent for this financial year, as it expects revenues flow from the IBM IP (intellectual property) deal from second quarter onwards. In its bid to improve focus on its products and platform business, the company also carved out a separate unit HCL Software and said it was currently building up sales and other team to support its functions.
In the first quarter, HCL Tech posted a 8.2 per cent decline year-on-year (YoY) basis in its net profit at Rs 2,230 crore. Sequentially, it fell 12.5 per cent. The decline in net profit was attributed to increased cost due to hiring more people in client geographies apart from sales investment towards IBM IP deal.

The IT services firm posted 18.4 per cent rise YoY in its revenues at Rs 16,425 crore, while revenues grew 2.7 per cent sequentially. In dollar terms, revenues stood at $2.364 billion, a rise of 3.8 per cent over the preceding quarter. Similarly, the revenue growth in constant currency term was 17 per cent YoY and 4.2 per cent QoQ. With 17 per cent constant currency revenue growth, HCL Tech reported the highest growth as compared to its larger peers. Tata Consultancy Services’ revenues grew 10.6 per cent YoY on constant currency term in Q1 of FY20, while Infosys posted 12.4 per cent growth during last quarter.

“We have started this fiscal year on a very strong note and with our current momentum. While our margins this quarter were muted in line with our investment strategy, I am confident that our operating model will deliver margins within our guided range," said C Vijayakumar, president and CEO, HCL Tech.

In the first quarter, the Shiv Nadar-promoted firm saw 180 basis points fall in its operating margin to 17.1 per cent owing to its planned investments in products and platform space.

Among verticals, while financial services recorded tepid growth of 0.5 per cent; retail and telecommunication witnessed a marginal decline in growth sequentially. However, manufacturing grew more than 15 per cent, while technology and services grew 5 per cent sequentially.

“We expect revenues from our IBM IP deal to flow from second quarter onwards. With an annual run rate of $650 million, second quarter should see an addition of $125 million of revenue. This will supplement both our revenue and EBIT numbers,” said Prateek Aggarwal, chief Financial Officer, HCL Tech.

The company added 5,935 staff on net basis in Q1 to take its total head count to 143,900 at the end of the June quarter. Its attrition also fell 40 basis points to 17.3 per cent during this period.

“We have already announced 6-7 per cent hike in salary for our offshore employees and 1-2 per cent for our onsite staff. These are being rolled out from July,” said Apparao V V, chief human resources officer, HCL Tech. He said the company would add 12,000 fresh graduates this financial year.

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