HCL Technologies does better than most rivals in Q4; revenue rises 16%

The fourth quarter growth was largely fueled by what HCL calls its mode-2 offerings, which include digital, cloud, cybersecurity and Internet of Things
India’s third-largest IT services firm HCL Technologies’ March quarter earnings growth exceeded that of its peers, and the company said it did not see a long-term impact from the Covid-19 pandemic.

Like some of its peers, the Noida-based company did not provide a full-year guidance given the current global uncertainties, but said it saw only a short-term impact from the Covid-19 pandemic.

The short-term impact, said Chief Executive C Vijayakumar would include “volume-based billing impact where customers have shut some plants and have some staff on furlough...There is some deferral of discretionary spend, new project decision making is slowing down and there are price discounts and payment term extensions on the demand side”. He said the medium- and long-term prospects of a business like HCL would grow stronger.

HCL's performance is in contrast to larger rivals TCS and Infosys, whose annual revenue growth fell short of double digits in constant currency terms. HCL’s revenue for the quarter rose 2.5 per cent sequentially to Rs 18,590 crore and 16.3 per cent annually. Net income was up 3.8 per cent sequentially and 22.8 per cent annually at Rs 3,154 crore. In constant currency terms, revenue was up 0.8 per cent quarter-on-quarter and 13.5 per cent on an annual basis.

In dollar terms, revenue was flat sequentially at $2.5 billion, and up 11.7 per cent annually. Net income was up 1.2 per cent quarter-on-quarter and 18.4 per cent year-on-year at $431 million. The growth in Q4 was largely fuelled by what HCL calls its mode-2 offerings, which include digital, cloud, cybersecurity, and Internet of Things.

HCL signed 14 transformational deals in Q4 led by telecom, retail, and CPG, manufacturing and financial services, and Vijayakumar said the firm saw record bookings in Q4 in spite of the slowdown towards the last few days of the quarter.

For the full year, the company posted revenue of $9.93 billion, a growth of 16.7 per cent in constant currency, slightly above its own projection of 16.5-17 per cent. Net income for the year was $1.55 billion, a growth of up 7.8 per cent annually. EBIT margin was 19.6 per cent for FY20, exceeding HCL's guided range of 19- 19.5 per cent. EBIT margin during the March ended quarter was 20.9 per cent.

In terms of its employees, Vijayakumar said: “There will be no Covid-related redundancies, our employees continue to be our most important stakeholders."

HCL said it activated its COVID-19 business continuity plan at the end of January, right after the first case of the novel coronavirus was reported outside of China, and now has 96 per cent of its employees working from home and another 2.5 per cent employees working from HCL or client locations.

Attrition in Q4 fell slightly to 16.3 per cent from 16.8 per cent in the previous quarter.

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