C Vijayakumar, chief executive officer of HCL Technology Ltd. (Photographer: Jason Alden/Bloomberg)

HCL Tech Q4 Profit Meets Estimates Led By Next-Gen Services

HCL Technologies Ltd.'s profit matched analyst estimates in the January-March quarter, led by the growth in the company’s new-age technology services.

The net profit stood at Rs 2,227 crore, an increase of 1.5 percent compared to the December quarter, according to the company’s exchange filing. That's in line with the Rs 2,248 crore profit estimated by analysts tracked by Bloomberg.

This can be attributed to an increase in the number of deals and the deal size in HCL Tech’s Mode 2 and Mode 3 segments, President and Chief Executive Officer C Vijayakumar told BloombergQuint in a post-earnings interaction. Mode 2 includes next generation services such as digital and analytics, internet of things, cloud, and cyber security. Mode 3 comprises external intellectual property partnerships with IBM.

Over the last financial year, “Mode 3 services have grown 43 percent year-on-year and Mode 2 services have grown 29.5 percent,” he said.

Sales in dollar terms rose 2.5 percent to $2,038 million in the March-ended quarter, also higher than the $1,988 million estimate. Earnings before interest and tax rose 2.9 percent to Rs 2,583 crore, while EBIT margins remained unchanged at 19.6 percent.

Shares of the company fell as much as 5 percent, the most since Oct. 26 last year, to Rs 1,000 in early trade today, becoming the biggest loser on the NSE Nifty index. The stock has risen 18.5 percent this year so far, compared to a 20.3-percent rise in the BSE IT Index. The S&P BSE Sensex Index has risen 3.4 percent in the same period.

HCL Tech, India's third-largest information technology company by market capitalisation, expects sales to grow between 9.5 percent and 11.5 percent in constant currency terms in financial year 2018-19. Guidance for margins stood at 19.5 percent to 20.5 percent for the same period.

While the margin guidance matches forecast, the sales estimates are lower than brokerage IDBI Capital’s forecast of 11-13 percent in constant currency terms, it said in a note.

HCL Tech concluded the quarter with “industry-leading performance”, backed by “broad-based growth across verticals, robust client additions and accelerated revenues,” Vijayakumar said in the exchange statement.

“We continue to report industry leading revenue per employee of $66,406 on the back of our digital, cloud, cybersecurity, IoT and IP led product offerings,” said Chief Financial Officer Anil Chanana.

Also Read: Wipro’s Profit Declines On Write-Off For Insolvent Client

Segment-Wise Performance

The manufacturing segment continued to dominate other verticals, contributing 34.6 percent to the overall revenue. This, however, was lower than the 24.6 percent reported last quarter. Revenue from telecommunications and public services segments rose.

  • Financial services stable at 24.2 percent compared to 24.6 percent last quarter.
  • Manufacturing fell to 34.6 percent compared to 36.5 percent.
  • Lifesciences and healthcare stable at 11.5 percent compared to 11.7 percent.
  • Public services rose to 11.7 percent compared to 10.2 percent.
  • Retail and consumer packaged goods stable at 9.2 percent compared to 9.6 percent.
  • Telecommunication and media rose to 8.4 percent compared to 7.4 percent.

Geographical Performance

The U.S., which is the largest market for the Noida-headquartered company, contributed 62.6 percent to its quarterly revenue. This was lower than the 63.5 percent reported during the December-ended quarter. Europe's contribution also declined by 1 percent.

“We await more clarity on muted performance of US which was 0.7 percent lower, quarter-on-quarter, in constant currency terms,” IDBI capital’s note said.

Client Additions

HCL Tech added 22 new clients during the March ended quarter.

  • One less client in the $100 million+ slab.
  • Three new clients in the $50 million+ slab.
  • Two new clients in the $30 million+ slab.
  • Two new clients in the $20 million+ slab.
  • Four new clients in the $10 million+ slab.
  • Three new clients in the $5 million+ slab.
  • Nine new clients in the $1 million+ slab.

FY18 Performance

The revenue in dollar terms for the financial year ended March 2018 rose 12.4 percent to $7,838 million, meeting the higher end of its guidance for the past financial year. This was backed by 13.8 percent growth in revenue from the U.S., followed by a 5-percent growth in the European market and a 6-percent growth in the rest of the world.

The manufacturing vertical also aided the overall sales, growing 18.3 percent over the year.

Net profit rose 3.8 percent to Rs 8,780 crore, while EBIT margin stood at 19.7 percent. “We are very happy with the overall FY18 performance. We have achieved both on revenue and margin front,” Chanana said.

India's largest IT company Tata Consultancy Services Ltd. reported a strong set of numbers for the March quarter and estimates a 10 percent sales growth in dollar terms, for the current financial year.

Also Read: TCS Bets On Business 4.0 To Push Digital Revenue To Over $5 Billion This Year

Going forward, it is "imperative for responsible leaders like HCL to be at the forefront of innovation, technology, solutions and people readiness,” said Shiv Nadar, chairman and chief strategy officer at HCL Tech. “We continue to make strategic investments for readiness, in face of these imminent shifts.”

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