News Analysis

HCL Tech’s revenues register a decline across verticals

Vivek Ananth BL Research Bureau | Updated on July 17, 2020

HCL Tech, the fourth of the large Indian IT services company to declare its results for the June 2020 quarter, has been hit hard by the Covid-19 pandemic. Like TCS and Wipro, HCL Tech’s revenues in dollar terms fell 7.4 per cent quarter-on-quarter to $2.4 billion.

Most of the fall in revenues was due to IT and business services and engineering and R&D services segments falling by 8 per cent and 9 per cent respectively q-o-q. The management said that revenues were also impacted due to some large deals that the company had bagged last year being moved offshore during the quarter. However, this has also supported the margins of the company.

Cost control

HCL Tech reported decent earnings before interest and tax (EBIT) margins of 20.5 per cent in the quarter ended June 30 (vs 20.9 per cent in Q4 FY20). This shows that it has managed to control costs during the quarter. This was helped by a nearly 3 per cent fall in outsourcing costs quarter-on-quarter and a near 24 per cent fall in other expenses.

Some of the cost control levers used by companies such as in travel, sub-contracting, consultancy and marketing have been common across the IT services industry during the quarter. But despite the cost control measures, the company’s consolidated net profit for the quarter declined 7.5 per cent quarter-on-quarter to ₹2,925 crore.

Revenue visibility

In rupee terms, HCL Tech’s posted a 4 per cent fall in revenues to ₹17,842 crore. Some of the impact on revenues was cushioned by the depreciating rupee.

The revenue visibility over the next three quarters of the financial year has increased, and as a result, the company has restarted revenue guidance. The management guided for a 1.5-2.5 per cent sequential growth in the three remaining quarters of financial year 2020-21. It also guided for a 19.5- 20.5 per cent EBIT margin for 2020-21.

The growth in revenues for 2020-21 in dollar terms are expected to be in the range of 0 per cent growth-2.5 per cent fall. This means the aspiration $10 billion revenue, which the company wanted to scale in 2019-20, may have to be delayed.

Performance across verticals

Two verticals — manufacturing and telecom, media, publishing and entertainment — were the worst hit during the quarter. While the former saw revenues fall by nearly 19 per cent q-o-q, the latter saw revenues fall by nearly 16 per cent q-o-q.

The third-worst affected vertical was retail and CPG. This is due to lesser consumption expenditure by retail consumers and also bankruptcies of retail players in the US. This in turn is having an impact on IT spends by retailers.

Another common theme across the industry is rise in revenues from life sciences and healthcare verticals. HCL Tech also saw revenues from this vertical rise nearly 2 per cent during the quarter.

Published on July 17, 2020

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