HCL puts up weak show for March quarter

K Venkatasubramanian BL Research Bureau | Updated on January 23, 2018

Delivers marginally better revenue growth compared to TCS

HCL Technologies followed its larger peer TCS in reporting a tepid set of numbers for the March quarter, going even below the low expectations that the markets had.

During the period, HCL’s revenues were unchanged sequentially, while net profits fell over 12 per cent in dollar terms as wage costs spiked during the quarter. Revenues for TCS dipped marginally during the March quarter.

As with TCS, for HCL too the weak euro played havoc as the company derives over 30 per cent of its revenues from Europe, though the UK dominates in terms of revenues generated. Utilisation witnessed a mild fall to 81.9 per cent during the quarter, indicating that volumes may have been weak. Revenues from its top clients too slipped marginally.

But individual segments did reasonably well and did not offer any major cause for concern.

Infrastructure as well as business services witnessed reasonable traction as both of them grew at a healthy pace. Manufacturing, telecom and public services verticals grew faster than the overall company’s revenue rate and provided some stability. Financial services and retail had very weak traction.

Large-sized client addition was healthy, with one customer added in the $50-million band, one in the $30-million category and four in the $20-million bucket.

This deal traction indicates that volumes may return in the next few quarters.

Looking ahead

The HCL stock has fallen more than 3 per cent, in reaction to its results. In the December period, it guided for a weak quarter, but delivered strong numbers. This time around the company has disappointed. The stock has corrected more than 10 per cent in the last one month. It may still be able to beat industry body Nasscom’s estimated growth rate of 12-14 per cent in FY15 for software players.

At 17 times trailing earnings, HCL is a lot cheaper than Infosys and TCS, which trade at 20-24 times.

But for any re-rating to happen, there needs to be a strong improvement in earnings. The earnings outlook around the entire IT sector, for now, appears clouded.

Published on April 21, 2015

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