News Analysis

HCL Tech Q2 results: Guidance upped for remaining quarters

Vivek Ananth BL Research Bureau | Updated on October 16, 2020 Published on October 16, 2020

Revenues for full year might be flat

HCL Tech’s improved operating performance and some verticals reporting good sequential revenue growth in the quarter ended September 2020 bodes well for the company. Although the company’s retail and consumer packaged goods vertical reported decent revenue growth, unlike its peers — TCS, Wipro and Infosys — HCL Tech saw muted growth in financial services and manufacturing.

HCL Tech’s consolidated net profit for the quarter ended September 2020 rose 7.4 per cent quarter-on-quarter helped by some tight cost control, fall in attrition and improvement in employee utilisation. Revenues came in at ₹18,594 crore, up 4.2 per cent QoQ as most verticals returned to positive sequential revenue growth during the quarter.

In dollar terms, the company’s revenues rose 6.4 per cent to $2.5 billion during the quarter. HCL Tech upped its revenue guidance to a sequential rise of 1.5-2.5 per cent in the December 2020 and March 2021 quarters. Based on the guidance, the company’s year-on-year revenue growth in dollar terms in FY21 could be flat.

Although the company is now at the quarterly revenue run rate of $2.5 billion — required to post $10-billion annual revenues — the management has said that this annual target ($10 billion) will be reached only by June 2021. HCL Tech was poised to post $10 billion in revenues in 2019-20, before the pandemic held it back.

Operating metrics

The company’s earnings before interest and tax margin came in at 21.6 per cent (versus 20.5 per cent in the June quarter) helped by tight control on costs, increased utilisation of employees and a fall in attrition. Attrition fell 240 bps to 12.2 per cent.

The company has upped its EBIT guidance for FY21 to 20-21 per cent from 19.5-20.5 per cent earlier. This guidance takes into account the rollout of pay hikes in the second half of the current financial year.

An operating parameter that bodes well for HCL Tech is the record low it has achieved in days sales outstanding at 61 days (versus 65 days in the June quarter). This metric indicates how long it take for the company to recover payments from clients.

Verticals and regions

Retail and consumer packaged goods (up 8.4 per cent q-o-q), along with lifesciences and healthcare (up 8.6 per cent q-o-q) were the two verticals that helped HCL Tech report decent revenue growth during the quarter. The technology services vertical (up 6.3 per cent q-o-q) also helped the quarterly revenue growth. These three verticals make up nearly 31 per cent of the company’s revenues in dollar terms.

While its peers such as TCS, Infosys and Wipro saw decent uptick in revenues from financial services vertical, HCL Tech saw revenues from this vertical rise by only 2.6 per cent sequentially. This vertical accounts for nearly 22 per cent of the company’s revenues.

Also, the company’s manufacturing vertical also saw muted sequential revenue growth of 1.5 per cent in dollar terms. This was due to some projects that were implemented earlier now being moved offshore. This lead to lower dollar revenues, but increased operating margins. This vertical makes up nearly 18 per cent of the company’s revenues in dollar terms.

All the regions HCL Tech operates in saw decent sequential revenue growth, with Americas and Europe seeing revenues rising 5 per cent and 2.2 per cent respectively. Revenues from rest of the world region, which accounts for 8.5 per cent of revenues, rose 9 per cent sequentially.

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Published on October 16, 2020
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