The March quarter results reiterated the pecking order of financial performance among the top four domestic IT players.
HCL Technologies delivered a better financial performance than what Infosys and Wipro reported, but fell short of TCS’ figures for the period.
The company’s revenues during the fourth quarter increased 2.5 per cent sequentially, compared to the 1.8-3.9 per cent growth delivered by peers.
Healthy client additions, stability in metrics such as utilisation and attrition, and traction across several verticals were positives during the period.
The operating margin was steady, at 19.6 per cent for the quarter.
The double-digit revenue growth guidance for FY19 should have given markets enough reason to cheer. Instead, the stock price corrected significantly(nearly 5 per cent), indicating concerns that much of the growth projection may be attributable to a series of acquisitions that HCL made in recent months and not its organic performance.
All-round performance
Revenues from segments such as financial services, public services, retail and telecom increased at a pace that equalled or exceeded the overall company’s revenue rate, indicating healthy broad-based growth.
HCL managed to add three customers in the $50-million category, two each in the $30-million and $20-million buckets and four clients in the $10-million segment. These additions were among the best in the industry during the period.
Utilisation, at 85.9 per cent and attrition, at 15.5 per cent compared quite favourably with the figures reported by peers. In FY18, HCL’s revenues grew at 12.4 over the previous fiscal, much higher than the 7-8 per cent growth rate for the industry. Trade body Nasscom has projected a 7-9 per cent growth rate for the IT industry in 2018-19. HCL has guided for 9.5-11.5 per cent revenue growth in FY19. Infosys gave projections for a 7-9 per cent increase.
But quite strangely, HCL’s stock trades at a little over 15 times its trailing 12 months’ per share earnings, lower than the valuation multiple demanded by Infosys and Wipro, despite growing at a much faster clip than these two companies. TCS, which trades at a price-earnings multiple of 25 times, is way ahead though.
HCL’s growth trajectory demands that it be accorded a price-earnings multiple that is at least equal, if not higher than what is given to Infosys and Wipro (17 times).