HCL Tech: Infrastructure management services a drag for the company

HCL Technologies reported tepid first quarter results on Monday - one that missed most analyst expectations on its dollar revenue growth. The company now lags both Tata Consultancy Services (TCS) and Infosys in top line growth.

HCL Technologies reported September quarter profits of Rs 1,726 crore, down 3.2 per cent over the June quarter of 2015. Revenues came in at $1.54 billion, a rise of just 0.5 per cent over the previous quarter. The flattish growth came below what the street expected: an inch up between 1 and 1.5 per cent. In contrast, Infosys, India's third largest IT exporter after TCS and Cognizant, grew 6 per cent quarter-on-quarter; TCS managed a 3 per cent jump.

The company, according to analysts, is struggling with client-specific issues in its infrastructure management services (IMS) that contribute nearly 35 per cent to its revenues. "Infrastructure management services deals have been sluggish and have dragged overall revenues. Some deals are going through a transition period," says analyst with brokerage Sharekhan Sanjeev Hota.

Apart from client-specific bottlenecks, the infrastructure management sector will become a tough nut to crack going ahead. Dipen Shah of Kotak Securities says that competition has been increasing with newer players and HCL needs to diversify soon enough into other service offerings. HCL Tech's revenues came in 1 per cent below his expectation.

The quarter's flat revenue growth, of course, will have implications on the company's full year performance. Industry watchers now think even garnering growth of 10 per cent this year would be an uphill task for HCL. In 2014/15, the firm grew 11 per cent.

HCL Technologies was trading at Rs 845.50 on the BSE at 12.44 pm, up 0.43 per cent. The Sensex was at 27,365.82, up 0.56 per cent.