HCL Technologies today posted a staggering 78.1 per cent jump in net profit at Rs 884.8 crore for the three-month period ended September 30 on the back of adding more Fortune 500 clients,surprising the markets.
The company’s net profit stood at Rs 496.7 crore in the July-September quarter of last fiscal. HCL follows a July-June fiscal year.
Revenues stood at Rs 6,091 crore during the reporting quarter,up 31 per cent from Rs 4,651.3 crore in the same period of 2011-12.
HCL Technologies Vice-Chairman and CEO Vineet Nayar attributed the overwheling growth in results to winning Fortune 500 accounts that have resulted in Americas and Europe geographies growing at 34 per cent and 37 per cent,respectively.
During the quarter,the company had won 12 multi-year,multi-million dollar contracts.
“The growth has been led,as expected,by business service lines. Infrastructure services demonstrated its continued dominance of market share … BPO has turned around,” Nayar told reporters here.
Company shares,however,closed 0.68 per cent lower than the previous close on BSE,after hitting one-year high in early trade.
Senior Analyst,Asit C Mehta Investments Intermediates said,”HCL Tech numbers positively surprised on the bottomline front … the operating margins came in at 22.2 per cent that expanded by 20 bps sequentially in Q1 FY13. The average salary per employee has increased by meagre 1.6 per cent QoQ. The complete impact of wage hikes is not incorporated in current quarter results”.
The impact of wage hike is expected to flow in the next quarter results,he added.
HCL Tech’s peer Infosys had earlier this month announced 24 per cent hike in profit but had lowered revenue guidance,dampening the investor sentiment.
HCL Tech is geared up to go “hunting” for a major chunk of the USD 40 billion worth of contracts coming up for renewal in the ongoing October-December quarter.
“Ours is a guerrilla strategy. Till now,we were in the execution phase of contracts that we won in last 12 months. In the October to December quarter,our hunters will go after the USD 40 billion worth of contracts coming up for renewal,according to TPI,” Nayar said.
At least USD 8 billion worth of contracts will change hands to new vendors,which in itself is a huge number,he added.
“We believe the next 60 days are going to be very crucial for the Indian IT industry,” he said.
The board has declared an interim dividend of Rs 2 per equity share of Rs 2 face value.
Kotak Securities Head of Private Client Group Research Dipen Shah said that HCL Tech’s results gave a positive surprise on the margins front.
“Revenues matched up to expectations. Maturing of large projects and increased off-shore contribution from the same helped margins sustain despite salary hikes,” Shah said.
Nayar was of the view that IT budget of companies are expected to be flat or negative.
“Directionally everybody is clear that the IT budgets are not going up. Its either flat or negative. Also,discretionary spends would depend on performance,” he added.
HCL Technologies’ growth has also come on the back of growth across developed markets like the US and Europe.
“There is a significant opportunity in developed markets like US and Europe because of vendor churn and therefore,we moved our efforts away from Rest of the World into these geographies. The result of that has been extremely good,” Nayar said.
He added that HCL does not expect any significant impact of the US elections as it is hiring people across these geographies as well. The USD 100 billion Indian IT industry earns about 80 per cent of revenue from the US and Europe.
For the September quarter,the US contributed 55.8 per cent of revenues,while Europe and Asia Pacific contributed 26.6 per cent and 17.5 per cent,respectively.
“Enterprise services continue to face significant headwinds because discretionary spends are under pressure.
However,on LTM basis,it has demonstrated growth which is extremely good in an extremely tight environment for discretionary spend,” he said.
The company’s cash and cash-equivalents stood at Rs 574 crore as on September 30,2012.
“While the currency markets continue to be volatile,HCL follows a layered hedging programme to cover its foreign currency exposure,” HCL Technologies CFO Anil Chanana said.
On sequential basis,the company’s net profit grew by 3.6 per cent during the reporting quarter. Its net profit stood at Rs 854.1 crore in April-June,2012.
Revenues,on sequential basis,grew by 2.9 per cent during the quarter. Its revenue stood at Rs 5,919.1 crore in the previuous quarter.
“Higher operating profits coupled with the efficient management of working capital,has enabled us to report 27 per cent return on equity on last twelve months (LTM) basis which is in the upper quartile of our industry,” Chanana said.
During the quarter,the company added 4,479 (gross) and 946 (net) employees,taking its total headcount to 85,335 by the end of September 30,2012.
The company has announced wage hike of eight per cent for offshore employees and two per cent for onsite workforce. The hike will be given in two phases: in July and October.
“The July hike had an impact of 80 basis points on our margins,while the second phase in October will have an impact of 100 bps,” Chanana said.
Stocks More on HCL Technologies
Company INFO More on HCL Technologies
India’s HCL Tech profit beats view,shares hit 12-yr high
* Qtrly profit 8.85 bln rupees vs 8 bln street view
* Won 12 multi-year,multi-million dollar orders during the quarter
* Shares rise to highest level in more than 12 years
(Reuters) HCL Technologies,India’s fourth-largest software services provider,posted a 78 percent jump in quarterly profit on large contract wins,beating expectations and sending its shares to their highest levels in more than 12 years.
Shares of the company,valued at about $7.9 billion,rose as much as 3.83 percent to 606.9 rupees in early Mumbai trading,their highest since March 2000. The shares were up 1.8 percent at 0507 GMT.
Consolidated net profit for the fiscal first quarter that ended September rose to 8.85 billion rupees ($167.9 million) from 4.97 billion rupees for the year-earlier period. Analysts were expecting profit to rise to 8 billion rupees,according to Thomson Reuters data.
This is a time when clients are really looking to cut costs,especially in many areas of services that are becoming commoditised. The company’s strategy is perfectly right for that,said Hardik Shah,an analyst with K R Choksey Shares and Securities in Mumbai. Shah has an accumulate rating on the stock.
HCL Technologies,whose customers include Freescale Semiconductor and Finmeccanica,won 12 multi-year,multi-million dollar orders during the quarter,according to a company statement.
India’s $100 billion-a-year outsourcing industry,which gets nearly 75 percent of its revenue from the United States and Europe,may grow exports 11-14 percent in the current fiscal year that ends March 2013,according to the National Association of Software and Services Companies,or NASSCOM,an industry lobby.
HCL Technologies’ September-quarter sales rose 11.1 percent from the year earlier,in dollar terms.
Infosys,the No. 2 provider,forecast it will grow only 5 percent this year,citing continued global economic uncertainty,which it said made clients less confident about spending.
HCL did not issue a full-year forecast. Top-ranked Tata Consultancy Services will report its results on Friday. ($1 = 52.70 rupees)