HCL Tech growth less broad-based compared with peers

At a time when it was expected to outpace peers, especially Infosys, HCL Technologies managed to deliver reasonably on revenues, though growth in key segments and profitability have been disappointing.

During the quarter, the company saw its revenues increase by 8.2 per cent sequentially to Rs 4,651 crore, while net profits slipped 2.7 per cent to Rs 496.7 crore.

The fall in profits has been due to a 9.6 per cent increase in salary costs and 11.6 per cent rise in SG&A expenses. In dollar terms, revenue growth has been only 4.1 per cent, which is lower than both Infosys and TCS.

Reported volume (person-months billed) growth too at about 4 per cent has been disappointing as it is again lower than peers, though pricing has been stable.

Less broad-based growth

In terms of verticals, manufacturing and retail & CPG (together accounting for 37.5 per cent of revenues) grew at 8 and 10.9 per cent, respectively.

BFSI has grown just marginally, while telecom continues to decline. Both Infosys and TCS had seen most of their key verticals grow at or higher than their overall rates.

From a services standpoint, the relatively lower-billed custom applications business has grown at 6 per cent, while engineering services, which generates relatively higher value has grown at a healthy 8.9 per cent.

HCL, which is a top player in the infrastructure services space, has seen this segment grow at just 4.3 per cent when near double-digit growth was the norm earlier. Enterprise application services have witnessed a decline.

This suggests that its clients may be more cautious on the discretionary spends front.

As with Infosys, HCL has seen higher growth from the North American geography at 6.8 per cent with slower expansion in Europe.

Another factor that may be a cause for disappointment is that there have been no additions of large-sized customers in the $50-million and $100-million categories.

The smaller buckets though have witnessed reasonable additions.

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