The Noida-based IT firm, which had bagged 12 large deals in the June quarter, witnessed strong organic growth in the past three quarters, mainly due to ramping up of contracts with Nokia, Broadcom and Xerox. Apart from winning large outsourcing contracts, revenues from HCLT’s recent IP deal with IBM will start flowing this quarter. With an annual run rate of $650 million, the second quarter itself will see an addition of $125 million in revenues. “While revenues from IP deals will start flowing from this quarter onwards, the bigger share of the engineering services segment puts the firm in good stead among its peers,” said Pareekh Jain, an IT outsourcing advisor and founder of Pareekh Consulting.
The Shiv Nadar-promoted firm draws $2 billion in revenues (on the run-rate basis) from its engineering and R&D practice, which is the largest among its Indian peers.
Despite these positives, HCLT is likely to see a tepid performance in its BFSI (banking, financial services and insurance) vertical. The financial services vertical accounted for 20 per cent of HCLT’s revenue in Q1 of FY20, and posted marginal growth of 0.5 per cent quarter-on-quarter. Similarly, the rising SG&A (selling, general and administrative) expenses eating into its margin remained another area of concern, experts said. However, the HCLT is confident of meeting its margin guidance range of 18.5-19.5 per cent. “Margins will be aided by contribution from IBM products acquisition, which has a higher margin of 30 per cent,” the Prabhudas Lilladher report said.
With 17 per cent constant currency revenue growth, HCLT had posted the sharpest revenue growth in the last quarter compared to its larger peers, such as Tata Consultancy Services (a rise of 10.6 per cent) and Infosys (a 12.4 per cent jump).
In the driver’s seat
The current revenue growth guidance of 14-16% for FY20 is seen as conservative
Large deals, revenue flow from IP deals to supplement top line this financial year
Despite headwinds, the company is confident of meeting margin guidance
The rising SG&A and the softness in the BFSI vertical seen as key risks