Firm moves ahead of Wipro in the June quarter

K Venkatasubramanian BL Research Bureau | Updated on July 27, 2018


HCL Technologies reported numbers that were mostly in line with market expectations. In doing so, the company sailed past Wipro in terms of revenues during the June quarter.

In a seasonally strong period, HCL’s revenues grew by 0.8 per cent sequentially (2.7 per cent in constant currency) in dollar terms. The company’s operating margins remained stable at 19.7 per cent.

TCS (1.6 per cent) and Infosys (0.9 per cent) had reported higher revenue growth during the first quarter, while Wipro’s declined by 1.7 per cent.

Client additions healthy

Incidentally, HCL recorded revenues of $2,055 million during the quarter, while Wipro delivered $2,027 million. If the trend sustains through FY19, HCL would be the third-largest India-listed IT services company, displacing Wipro.

During the June period, HCL added one client in the $100 million category and four in the $50 million bucket, which compares favourably with what Infosys and TCS managed.

But growth was not broad-based for HCL, and was a mixed bag. Revenues from verticals such as financial services, manufacturing and retail witnessed a 1.3-1.6 per cent decline sequentially in constant currency. But technology services, life sciences & healthcare and public services grew at a healthy 3.5-13.4 per cent.


Barring TCS, no other top-tier IT company experienced substantially broad-based growth across segments in the June quarter.

Revenues from the Americas grew at a healthy pace (5.9 per cent), while those from Europe fell. The company expects the demand in verticals such as financial services to be robust in the coming quarters, with no specific cause for concern.

Attrition increased a bit to 16.3 per cent. Utilisation was healthy, at 85.5 per cent and the company expects to push it up further, thus aiding margins.

Unjustified discount

HCL has retained its guidance for 9.5-11.5 per cent revenue growth in dollar terms (constant currency) this fiscal. It looks set to achieve near double-digit increase in revenues during the financial year, slightly ahead of trade body Nasscom’s projected industry growth rate of 7-9 per cent in FY19.

But the HCL stock still trades at a little over 14 times trailing earnings, lower than the multiples enjoyed by TCS (27 times), Infosys (19) and Wipro (16).

With healthy June quarter numbers and reasonable full-year guidance, the HCL stock should bridge the valuation gap at least with Wipro.

Published on July 27, 2018

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