The stock of HCL Technologies dropped about 15 per cent in trade today. This was after a a company press release to the stock exchanges on Wednesday stating that revenues in the September quarter will be tepid due to adverse cross-currency rates, a client specific issue and skewed revenue growth in the infrastructure management space (IMS).

What’s wrong?

Dollar revenues will be down by about 80 basis points, due to depreciation of some currencies against the USD. On the issue with a client, the company will be setting aside $20 million this quarter as it says that there are differences with regard to program objective. While on one end this means lower profit margins in the quarter, it also looks like the company may lose the client. The client had a multi-million dollar order given on a long term contract to the company.

The difficulties in growth in the infrastructure management, is also a concern. In the June quarter, IMS revenue grew by a strong 5.2 per cent and made good the muted growth in application and engineering services. While the market was expecting a 3-3.5 per cent growth in constant currency revenues from HCL Tech in the September quarter, the expectation has now dropped to about 1-1.5 per cent.

Profit margins may also be hit. In the June quarter itself, the company had reported a 100 basis point sequential drop in operating margins to 21.48 per cent. In the September quarter, it could be even lower.

The US has been a strong market for the company. Last quarter, HCL Tech’s growth in the US market surpassed even TCS’. If the good traction in revenue from the US continues in the September quarter, it can benefit the company.

Related Topics
comment COMMENT NOW