The last of the big IT services companies to report quarterly results — HCL Technologies — has delivered better earnings than its larger peers, thanks to a strong performance on the margin front. But for the weakening rupee and cost controls that bumped up HCL Tech’s margins, the flat dollar revenues during the quarter could have weighed on its profits.

But as it stands, the company posted a 7.7 per cent quarter-on-quarter (QoQ) rise in net profit during the March quarter, beating TCS, Infosys, Wipro, and Tech Mahindra in terms of profit growth. Revenue in rupee terms rose during the quarter by 2.5 per cent QoQ to ₹18,587 crore. The rise was aided predominantly by the fall in the rupee; dollar revenues were flat sequentially at $2.54 billion. HCL Tech, however, managed to meet its yearly dollar revenue growth guidance for FY20 of 16.5-17 per cent, thanks to its strong nine-month performance.

The fall in rupee against the dollar and some stringent cost control measures helped the company meet its yearly margin guidance. EBIT margins came in at 20.9 per cent in Q4 (above FY20 guided range of 19-19.5 per cent).

Also read: HCL Tech Q4 net income up 23 per cent at ₹3,154 crore

HCL Tech’s management said it would continue with its efforts to control costs in FY21. The pause in lateral hiring could aid this. But it did not specify whether it has frozen pay hikes. Most large Indian listed IT services firms have paused their pay hikes for FY21. As HCL Tech’s pay hike cycle normally starts in July every year, the management indicated that it would comment on this in the ensuing quarter.

Sanguine performance

HCL Tech is the only large India IT services company that has posted double-digit dollar revenue growth for FY20. Even if we take out its acquisitions, which contributed around 6 percentage points to FY20 revenue growth, the company’s organic revenues grew 10.7 per cent during the year.

Revenues in dollar terms came in at $9.9 billion for the full year. If not for the flat revenue growth in the quarter ended March 2020, HCL Tech would have crossed the $10-billion revenue mark in FY20. Considering that some of its peers like Infosys and Wipro struggled to meet their FY20 revenue guidance, HCL Tech’s performance has been heartening.

Also, the company posted 19.6 per cent in EBIT margins in FY20, beating its guided range of 19-19.5 per cent. HCL Tech, like its peers, avoided giving any revenue and EBIT guidance for FY21.

Segment performance

Most of the revenue growth during the quarter came from the Americas and other parts of the world as Europe revenues were flat. It would be interesting to see how this pans out in the future with both European and US economies being in the doldrums.

HCL Tech’s new products and platforms business saw flat growth during the quarter, which got reflected in its overall flat dollar revenues. In the past couple of quarters, revenues from the products segment had helped it report decent sequential revenue growth. This segment houses the IBM platforms business that the company acquired in July 2019. The company is still confident that this segment will contribute a notable portion of its revenue growth in the future.

Only the technology and services vertical reported good sequential revenue growth of 7.2 per cent during the quarter ended March 2020. HCL Tech’s two large verticals — financial services and manufacturing — saw revenues shrink sequentially.

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