COMMENT. HCL Technologies disappoints investors, but there were some positives too

Rajalakshmi NirmalBL Research Bureau Updated - January 20, 2018 at 11:21 AM.

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The keenly awaited March 2016 quarter results for HCL technologies turned out to be a damp squib, elevating investor concerns. The stock has fallen over 3.5 per cent in trade today.

The company’s outperformance vis-à-vis peers in the December quarter, which led to some optimism has dried up now, given the weak revenue performance in most verticals.

At 1.7 per cent sequential growth in constant currency terms, revenue growth came below market estimates of 2-2.2 per cent. It was also lower than the growth reported by its peers -- Wipro, Infosys and TCS.

Among the geographies, growth dropped in North America with revenues from the region growing 3.7 per cent sequentially, down from 5.5 per cent in the December quarter. Revenues from Europe continued to slide and were down 2.4 per cent.

In Europe, all other IT biggies managed to grow their revenues in the March quarter. Wipro for instance recorded a 1.4 per cent sequential growth in revenues from Europe, while TCS recorded 3.6 per cent growth in Continental Europe.

All key verticals of HCL Technologies -- financial services, manufacturing and retail recorded lacklustre performance. Financial services vertical reported a 1.3 per cent drop in revenues from the December quarter, while manufacturing vertical recorded just a 0.9 per cent growth.

Attrition rate increased to 17.3 per cent from 16.7 per cent in the December quarter. All other IT majors though, reported a drop in attrition.

EBIT margins came at 20.7 per cent, up 70 basis points from the December quarter. But, this was lower than the company’s guidance of 21-22 per cent.

Positives

The company’s IMS' (infrastructure management services) revenue visibility continues to improve. This business division, which makes up for a third of HCL Tech’s revenue, reported a growth of 3.9 per cent sequentially versus 3.4 per cent in the December quarter and 0.9 per cent in the September quarter. So, the company’s strong hold in the market and new orders are paying off.

The other promising aspect is the company’s improved churn in the business from existing clients.

Revenues from existing clients were 96.5 per cent, up from 96 per cent in the December 2015 quarter and 94.2 per cent in the same quarter last year.

Also, though the attrition rate was higher, the company improved its utilisation to 85.6 per cent against, 84.7 per cent in the December 2015 quarter.

Published on April 28, 2016 08:15