HCL Tech’ sales growth robust, margins stable

HCL Technologies’ sales grew by about 5% sequentially in the December quarter, due to good performances in its key markets of US and Europe, and high levels of growth in emerging markets. Its performance is comparable to that of Tata Consultancy Services, with revenues rising 4.9% sequentially to Rs 3,888 crore and by 28% over the same quarter, a year ago. Comparable figures for TCS during these periods were 4% and 26%. Both can’t compare on size, however, with HCL Tech’s revenues at just 40% of TCS’ revenues.

The company’s net profit, as per US GAAP, has risen by 23% sequentially to Rs 397 crore and by 34% over the year ago period, indicating a recovery at the net profit level, compared to the September quarter. Its net profit margin was 10.3%, compared to 8.9% in the previous quarter and 9.8% in the same period a year ago.

Margins have remained steady for the company, with its EBITDA margin (earnings before interest, tax, depreciation and amortisation) at 16% in the December quarter, same as the September quarter, but down from 23% in the December 2009 quarter. There has been a sharp increase of in its selling, general and administrative expenses, year on year, which is partly responsible for this.

Infrastructure services and custom application services are the main drivers of growth (at 9% quarter on quarter) amongst the service offerings, followed by engineering and R&D services.

Among the sectors it operates in, retail and consumer packaged goods and energy-utilities-public sector are the bigger contributors to growth, at 16% and 13% respectively, sequentially. Health care and retail are the key contributors to annual growth. Each of these verticals account for about 7-8% of the revenues. Financial services and manufacturing contribute to over half of revenues, and sales rose by 7.2% and 5.2% respectively.

For financial reporting, its business is split into software, infrastructure and BPO services. In the software services business, EBITDA margins have declined both sequentially and y-o-y, due to a higher increase in costs. This business contributes about 70% of consolidated revenues. But infrastructure services, which contributes 23% to revenues, has seen its margins increase a bit. BPO services, which account for 6% of revenues has seen flat revenue growth on a sequential basis, and a 17% fall in sales year on year, for the quarter ended 31 December 2010.The losses for this business have also increased.

HCL Tech’s employee strength has increased by over 2000 employees to 72,267 currently. This strength is 54% that of Infosys and 39% that of TCS. Hence, revenue per employee of HCL Tech at Rs 5 lakh for the quarter is comparable to that of TCS. This is indicative of its business expertise and capability to take on larger scale projects.

At the geographical level, the growth in Asia, Middle-east and Africa together at 15% quarter and 60% year on year, surpass that of Europe and Americas, which are around half that of the same. However, Europe and Americas are the main markets, totally contributing to 87% of revenues.

Investors appear pleased with the company’s results, and the HCL Tech share was up by 4% at the time of posting.

Get the results and the investor update from the company’s website here.

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