News Analysis

HCL Tech stands out from the rest

Rajalakshmi Nirmal | Updated on January 11, 2018

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Buoyed by US revenue growth and exposure to infra management, engineering services

HCL Technologies has delivered a better performance than its larger peers. In the June 2017 quarter, revenue growth in constant currency terms was 12.2 per cent. This is higher than Wipro’s 3.4 per cent growth and a 6-plus per cent growth managed by Infosys and TCS.

Sequential growth during the quarter in dollar terms, too, was stronger than others’. It was a growth of 4.1 per cent for HCL Technologies while others managed only 2-3 per cent growth.

The outperformance is thanks to a strong growth in revenue from the US. Unlike Infosys and TCS which showed an under 2 per cent (sequential) revenue growth (in constant currency), for HCL Technologies, growth in the US geography was 3.8 per cent (compared to same quarter last year, it was a growth of 16.9 per cent in revenue).

The company’s Infrastructure Services segment, which contributes about 40 per cent to revenues, showed a sequential revenue growth of 1.7 per cent in constant currency terms (vs. 0.9 per cent in the March 2017 quarter).

The engineering and R&D services, which has been a growth driver for the company over the last few quarters, recorded a 7.9 per cent growth. On a y-o-y comparison, growth in the segment is a robust 34.7 per cent.

In terms of verticals, all of them but for public services and telecommunications, posted a revenue growth (sequentially, in constant currency terms).

The largest vertical – manufacturing — recorded 3.3 per cent revenue growth. This was lower than the 6.3 per cent growth recorded in March 2017 quarter, but given that the y-o-y growth stood at 18.2 per cent, the performance is heartening.

The company added a few large clients – 3 in the $30 million-plus bucket and 1 in the $40 million-plus bucket. However, it appears like it was better client mining that helped the growth in revenue during the quarter. Revenue from existing clients contributed to 97.6 per cent in the June 2017 quarter, up from 92 per cent in the March 2017 quarter and 96 per cent in the same quarter last year.

Margin surprise

Operating profit margins were reported at 22.07 per cent, an improvement from 21.98 per cent in the previous quarter on improved operational efficiency.

Infosys, TCS and also Wipro had reported a margin contraction of 50-200 basis points. HCL saw attrition decline to 16.2 per cent in the June 2017 quarter from 16.9 per cent in the March 2017 quarter and 17.8 per cent in the June quarter last year.

HCL Technologies has maintained its revenue guidance for 2017-18 at 10.5-12.5 per cent (in constant currency).

This increases the confidence about its ability to outperform its peers on a sustainable basis. Over the next three quarters, if the company continues to see traction in orders in infrastructure and engineering services segments, achieving the guidance will not be a tough task.

Published on July 27, 2017

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