C Vijayakumar, chief executive officer of HCL Technology Ltd., speaks during a Bloomberg panel session on the opening day of the World Economic Forum (WEF) in Davos, Switzerland. (Photographer: Simon Dawson/Bloomberg)

Q2 Results: HCL Tech’s Earnings Meet Estimates

HCL Technologies Ltd.'s earnings met estimates in the quarter ended September even as its margins remained flat.

Net profit rose 4.2 percent over the previous quarter to Rs 2,534 crore in the second quarter, according to the company's exchange filing today. That's higher than the Rs 2,433 crore estimated by analysts tracked by Bloomberg.

Revenue in dollar terms rose 2.1 percent to $2,099 million, in line with the $2,096-million estimate. Revenue in constant-currency terms rose 3 percent to Rs 14,860 crore for the quarter compared with a Rs 14,748-crore estimate.

The subdued revenue was partially because of issues with two clients in the financial services segment, its biggest vertical. “We have two clients where one of them is in-sourcing and the other is cutting down on discretionary spends,” Chief Executive Office C Vijayakumar told BloombergQuint. He expects this pressure to last for at least the next few quarters.

Earnings before interest and tax rose 2.2 percent to Rs 2,922 crore. EBIT margin was flat at 19.8 percent versus 19.7 percent in the previous quarter.

That’s when margins of all information technology companies were aided by a sharp fall in the rupee during the quarter. The currency has weakened 13.23 percent this year so far, acting as a tailwind to the export-oriented IT industry.

“The forex gain was about 90 basis points this quarter,” said Prateek Aggarwal, chief financial officer of the company. “The wage increment impact however, was also 70 basis points.”

HCL Tech expects its 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 19.5-20.5 percent for the same period.

“The depreciation in the rupee versus the U.S. dollar and euro should aid margins for the offshore IT services group next quarter, given that a portion of their costs are in India. This should help these vendors offset pressure they face from wage hikes and contract renewals for legacy IT work,” Bloomberg Intelligence had said in a prior report.

HCL Tech’s stock has lagged the NSE Nifty IT Index, rising 8.73 percent in 2018 so far compared to a 21 percent rise in the sectoral benchmark.

Q2 Results: HCL Tech’s Earnings Meet Estimates

Watch video for HCL Tech Q2 review