HCL Tech Q1 revenue lags analysts' estimates

India's fourth largest technology firm posted a net income growth of 63.8 per cent in the July-September quarter of 2013/14 and revenue growth of 31.2 per cent against last year's Rs 7,961 crore.

Sunny Sen
India's fourth largest technology firm, HCL Technologies, posted a net income growth of 63.8 per cent in the first quarter of 2013/14, which came from a combination of currency benefit, momentum in financial services and infrastructure deals. HCL Tech starts its financial from July of every year.

Revenue growth was 31.2 per cent above that of the previous year at Rs 7,961 crore. But analysts had expected even better.

HCL Tech marginally disappointed on the revenue front, but exceeded expectations considerably on operational performance as well as on the overall bottomline, wrote Ankita Somani, research analyst, IT at Angel Broking.

Anant Gupta, CEO, HCL Tech, however, was dismissive of this view. "We had a strong quarter behind us," he said at the morning conference. But, given the current economic situation he was committed to spending on sales and marketing to boost revenue in the coming quarters. "This is a reflection of what we see in the market today," he added. "The outlook is that next year, 24 per cent of the IT deals are up for renewals." He wants to grab a chunk of them.

Yet Gupta felt the operating environment was good, as HCL Tech's large customers were looking for support in emerging countries such as Latin America, Middle East and the ASEAN countries.

The company increased its earnings before interest tax depreciation and amortisation (EBITDA) to 26.3 per cent from 21.8 per cent a year back. Of this, 250 basis points came purely because of rupee depreciation. HCL Tech is looking at further improvement of margins.

Among the steps being taken to do so are a consolidation of its 17 facilities in Chennai, Bangalore and the National Capital Region. "We are consolidating to cut down on operating costs and this will open up 31,000 new seats (for hiring)," said Anil Chanana, Chief Financial Officer, HCL Tech. "Smaller facilities are getting consolidated into the larger ones," added Gupta.

In the past quarter, operating income was impacted by 50 basis points due to a wage hike. "We completed our performance appraisals in the last quarter," says Prithvi Shergill, Chief Human Resource Office at the company. Ajit Kumar was hired to head the applications and systems delivery division.

Manufacturing and financial services continue to be the strongest verticals, contributing 59 per cent of HCL Tech's overall business. Infrastructure services too had a great run and contributed 33.1 per cent to the revenue, up by six points.

HCL Tech had nine transformational deals in this quarter, and added one client each in $100 million and $50 million bracket. Its top five clients contribute 15.1 per cent of HCL Tech's overall revenue. "HCL Tech booked more than $1 billion worth of deals, maintaining its sustained momentum of signing $1 billion worth of deals every quarter," writes Somani in her analyst note.

In comparison, India's largest IT firm Tata Consultancy services posted a 34 per cent growth in net profit at Rs 4,702 crore and a revenue growth of 34.3 per cent compared to last year. Former Indian IT bellwether Infosys net profits increased marginally by 1.6 per cent to Rs 2,407 crore.

Even though buyers expected the stock to perform well, the share price took a hit on the day of the results. HCL Tech's stock closed 6.66 per cent lower at Rs 1,083.15 on Thursday.