HCL’s margin shrinks on higher staff costs

Vivek Ananth BL Research Bureau | Updated on August 07, 2019 Published on August 07, 2019

HCL Technologies   -  The Hindu

HCL Technologies’ net profit came in 13.5 per cent lower sequentially in the June 2019 quarter at ₹2,220 crore due to higher employee costs and higher depreciation expenses due to a change in accounting for leases.

The company’s mainstay Americas region helped it report 4.2 per cent revenue growth in constant currency terms when both Europe and the rest of the world saw tepid growth during the quarter. Revenue in dollar terms came in at $2.36 billion.

Most of the revenue growth came from the manufacturing vertical, which grew by 18.4 per cent during the quarter, followed by technology and services (5 per cent) and life sciences and healthcare (2.4 per cent).

HCL Technologies added two $100-million clients during the quarter in an otherwise moderate deal-booking period. In three out of four quarters of 2018-19, HCL Technologies booked the highest number of deals in its history. Hence, there seems to be a decent revenue pipeline baked in due to the record number of deals booked in 2018-19.

The margins for the June quarter came under the company’s guided range of 18.5-19.5 per cent for 2019-20 at 17.1 per cent due to investments for future projects made by the company, and an 8.9 per cent rise in consolidated employee costs. The margin for the previous March quarter was at 19 per cent.

The point to note here is that the yearly hikes to employees will only kick in from July 1. So, the hike in employee costs pushed to Q2 2019-20 could impact margins later. On the whole, the company has hiked salaries by 6-7 per cent for offshore employees and 3.4 per cent for onshore employees.

IBM deal completed

The IBM deal was completed on July 1, hence there was no revenue impact of the same in the June quarter. The company expects to book $600 million in revenue over the next 12 months from this deal, which is expected to net at least 50 per cent in margins. As a result of this, the company has retained its margin and revenue growth guidance (14-16 per cent) for the year.

The company managed to curtail attrition during the quarter at 17.3 per cent compared to 17.7 per cent in the March quarter. There is some hiring of freshers that the company plans to complete in the July-September quarter. It has recruited some of the 12,000 freshers it plans to hire during 2019-20.

Published on August 07, 2019
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