HCL Technologies beat market expectations and delivered growth that matched Infosys, but was well behind market leader TCS during the September quarter.

Strong volumes, increase in the proportion of fixed-price contracts that provide better margins and greater traction in top clients were positives for HCL during the quarter.

Steady growth

During the period, HCL’s revenues grew 14 per cent sequentially (3.5 per cent in dollar terms). The revenue growth almost kept pace with Infosys at 3.8 per cent but was below the 5.4 per cent expansion that TCS delivered.

HCL witnessed a 3.6 per cent increase in volumes (person months billed), a tad higher than 3.1 per cent at Infosys, but still less than half of the spectacular 7.3 per cent that TCS achieved. Billing rates for HCL held up as with other players.

Revenues from key segments, such as financial services, manufacturing and life sciences & healthcare rose 5.6-6.8 per cent sequentially, much faster than the overall company’s growth rate. HCL also witnessed good growth from the US and Europe.

HCL’s revenues from its top 20 clients grew faster than that from others, suggesting it has been able to mine existing clients for greater quantum of business. It also added one client in the $100-million category. TCS managed three new clients in the same bucket, while Infosys did not add any customer in the $100-million category. Fixed-price contracts increased contribution to HCL’s revenues to 54.7 per cent.

The one aspect on which HCL stole a march over its rivals was in infrastructure management services (IMS), where it is the top player and grew at an unusual 8.7 per cent. Other service offerings grew just 0.6-1.9 per cent sequentially in the September quarter.

Revival in US, Europe

For TCS and Infosys, demand across other services has been robust. HCL may have to get its act together on this front.

The IT industry appears to have hit a good patch with revival in spends in the US and increasingly in Europe as well; evident from the performance of the top-tier and many mid-sized players.

TCS, Infosys and HCL have made the most of two seasonally strong quarters. Of course, TCS is likely to lead the industry growth, given its consistency, and easily achieve trade body Nasscom’s projected IT industry growth rate of 12-14 per cent for the current fiscal.

With Infosys too regaining old form and Wipro looking to pull up its socks, it may no longer be just a TCS-HCL show, going forward.

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