Net Profit: HCL Tech's July-September quarter consolidated net profit of Rs 885 crore was 3.6 per cent higher than Rs 854 crore in the June quarter. On a year-on-year basis, profit jumped 78 per cent from Rs 497 crore a year ago. The Street expected HCL Tech to report a decline in profits over the June quarter on account of wage hikes and forex losses.
Sales: Revenues rose 2.9 per cent at Rs 6,091 crore against Rs. 5,919 crore in the June quarter. On an annual basis, sales jumped 31 per cent. U.S. and Europe grew 4 per cent and 2.7 per cent respectively. The growth was largely driven by infrastructure services segment - up 10 per cent QoQ in constant currency, brokerage firm Macquarie said.
Dollar revenues: HCL Tech posted 3.2 per cent rise in sequential dollar sales at $1114 million against $1080 million in the June quarter. On a year-on-year basis, sales jumped 11 per cent.
Margins: HCL Tech said earnings before interest, tax, depreciation and amortization (ebitda) margins - a key measure of profitability - expanded 20 basis points at 22.2 per cent in Q1 over June quarter. Most analysts expected the company to report a large dip in margins on account of wage hike. Investment bank Citi said "margins surprised positively... wage impact has been absorbed with efficiencies/utilization".
"This is second quarter in row when HCLT has beaten street forecast on margins. While the adverse currency movement would make an impact in October - December quarter absorption of 200 basis points pressure from wage hikes is a positive,” Macquarie said.
Volumes: HCL Tech also reported strong volume growth of 4.5 per cent in the September quarter. It had reported 1.8 per cent and 2.9 per cent volume growth in the previous two quarters. Volume growth in software services segment was steady at 2.5 per cent QoQ (against 1.8% in 4Q).
Vertical mix: Broad based growth across verticals was led by healthcare at 14.6 per cent QoQ, retail and CPG at 10.2 per cent, and financial services at 3.6 per cent. Manufacturing contributed the biggest chunk to HCL Tech's revenue at 27.6 per cent in the September quarter. Financial services contributed 24.1 per cent, healthcare 12 per cent and retail and CPG 9.2 per cent. Telecom, which contributed 7.5 per cent to the revenue in the September quarter, declined 3.2 per cent QoQ. Citi said telecom continues to be a challenge for HCL Tech.
Geographical mix: U.S. and Europe grew 4 per cent and 2.7 per cent over the June quarter respectively. On a year-on-year basis, U.S. and Europe grew 17.7 per cent and 17 per cent respectively. US accounted for 57 per cent of HCL Tech's total revenue in Q1 (against 56.6 per cent in Q4) while Europe contributed 27.9 per cent to total revenue in Q1 (against 28 per cent in Q4).
New deals: HCL Tech won 12 multi-year, multi-million dollar deals this quarter across service lines led by manufacturing, financial services and consumer services verticals. The company added four new clients in the $100 million category.
Service offering mix: Infrastructure management again led the growth among the service offerings, rising 10.3 per cent QoQ. BPO services grew at 4.8 per cent and custom application services at 1.6 per cent.
Brokerages: Most brokerages have a positive rating on HCL Tech. Macquarie said it prefers HCL Tech in large cap space. Barclays said, "The results are another step in cementing HCL Tech’s position within the larger IT services peers group due to consistent growth and improving profitability. We maintain our overweight rating".