People walk in front of the HCL Technologies Ltd office at Noida, on the outskirts of New Delhi
HCL Technologies’ September quarter results were mixed — the growth in top line was below analysts' estimates, but the operating margin performance was in line with expectations. However, the management’s commentary was positive and could buoy the sentiment.
The stock, which dipped nearly four per cent intra-day, erased the losses towards close, ending just 0.7 per cent lower.
Revenues grew 2.3 per cent sequentially at Rs 12,434 crore, below the three-per-cent-level pegged by analysts. The constant currency growth at 0.9 per cent, too, was lower than that of its peers. The growth was driven by its manufacturing and hi-tech vertical (35 per cent of revenue), which grew 2.4 per cent sequentially. The financial services one grew 1.2 per cent. The two put together account for 60 per cent of the company’s overall revenue.
While growth in Europe was strong at 4.4 per cent, revenue for the rest of the world (ROW) market fell 12 per cent. The company indicated that it has become selective in taking projects in India, leading to the fall in the ROW segment. While the growth outlook for manufacturing is good, the company’s relatively low exposure (25 per cent revenues compared with 33-40 per cent for peers) to financial services offers it the scope to increase its share with large banks.
HCL Tech maintained its annual revenue growth guidance at 10.5-12.5 per cent in constant currency terms. The growth is expected to be led by the digital services and products & platforms segments. The two constitute 19 per cent of the revenue, and is the faster-growing part of the business compared with the legacy (application, infrastructure and engineering) segment, which is expected to grow in single digits.
The firm is expected to use its proprietary automation platform to improve product offerings of its core services. Half of its FY18 growth is expected to come from its acquisitions, which includes $780-million worth of intellectual property acquired from IBM in the last year.
An increase in the proportion of revenue from existing clients, which has been going up (including in the September quarter) both from larger clients (Top 5 and Top 10) and across revenue buckets, is also expected to help.
At operating profit level, the earnings before interest and tax margin were down 40 basis points over the June quarter at 19.7 per cent, but was on expected lines. HCL Tech has stuck to its margin guidance of 19.5-20.5 per cent for FY18, and believes there are several levers to improve profitability and automation would be one. Net profit at Rs 2,188 crore, up 0.8 per cent sequentially, also beat estimates due to a surge in foreign exchange gains.
The Street will look at growth from various verticals, including financial services where the company’s outlook is more positive than its peers Infosys and TCS.