News Analysis

Q2 earnings: HCL Tech ups FY20 revenue guidance buoyed by IBM products contribution

Vivek Ananth | Updated on October 24, 2019

HCL Technologies posted good results for the quarter ended September 2019, helped by healthy growth in revenues from its engineering and R&D services and products and platforms segments. The acquisition of the IBM suite of products, which was concluded during the period, also aided the performance in the September quarter.

Consolidated net profit rose 19.4 per cent ₹2,651 crore sequentially in the quarter ended September, while revenues grew 6.7 per cent to ₹17,528 crore. The company had earlier stated that the IBM deal would earn it $600 million in revenues over a 12-month period from deal closure (July 1, 2019). The company expectsIBM products acquired to rake in almost 50 per cent EBIT margins. In terms of segments, the company’s engineering and R&D services saw revenues grow by 5.4 per cent sequentially, while the products and platforms segment’s revenues rose by nearly 57 per cent, boosted by the IBM deal. IT and business services saw muted sequential growth at about 1 per cent.

Its standalone products subsidiary, incorporated during the quarter, posted healthy $100 million in revenues the first quarter of operations. During the quarter, HCL Tech posted EBIT margins of 20 per cent (helped by IBM products) well above its 2019-20 guided range of 18.5-19.5 per cent.

HCL Technologies upped its constant currency annual revenue growth guidance to 15-17 per cent for 2019-20 from 14-16 per cent. This was due to an expected bump up in revenue from its acquisition of IBM’s suite of products that was announced in December 2018. HCL Technologies closed the deal in the quarter ended September and started recognizing revenues from the products it acquired.

However, it maintained margin guidance for FY20 at 18.5 – 19.5 per cent. For the six-month period, HCL Tech’s margins came in at 18.56 per cent.

Regional performance

Its mainstay Americas geography saw slowing revenue growth (0.1 per cent QoQ). Europe and rest of the world geographies offset the slack growing 17.1 per cent and 24.4 per cent (sequentially), respectively. The IBM deal helped the growth in revenues from Europe and rest of the world.

The company’s management is optimistic about the future performance of European region, despite its peers (TCS, Infosys and Wipro) witnessing some weakness in client spends.

Published on October 23, 2019

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