HCL Posts 3.6 Percent Rise in Net Profit, Says Margins Hit by Currency Volatility

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HCL Posts 3.6 Percent Rise in Net Profit, Says Margins Hit by Currency Volatility
Country's fourth largest IT services firm HCL Technologies on Tuesday reported a 3.6 percent rise in third quarter's consolidated net profit at Rs. 1,683 crores, while margins were impacted due to currency volatility.

The Noida-based firm, which follows July-June fiscal, had posted a net profit of Rs. 1,624 crores in the year-ago period. The company's consolidated revenue for the reported quarter rose 11 percent at Rs. 9,267 crores from Rs. 8,349 crores in the corresponding period a year ago.

However, on a sequential basis, the net profit of the IT major declined by 12.2 percent from Rs. 1,915 crores in Q2 FY2014-15, while revenue dipped 0.2 percent from Rs. 9,283 crores as its margins dropped on account of currency volatility and a stronger US dollar.

Reacting to the performance, shares of HCL Technologies tanked nearly 10 percent as the earnings came in below market expectations. The scrip plunged 9.64 percent to Rs. 834.10 at the BSE and slipped 9.65 percent to Rs. 835.10 on the NSE. At 1248 hours, the stock was trading at Rs. 889, down 3.7 percent on the BSE.

During the quarter, HCL Technologies reported a foreign exchange loss of Rs. 142 crores as against a forex gain of Rs. 15 crores in the previous quarter, which also adversely impacted the net profit. The currency impact on the revenues was about 270 basis points or 2.7 percent.

It also invested on setting up co-innovation labs to focus on "growth, differentiation and competitive edge".

"HCL continues to deliver broad-based growth across geographies, verticals and horizontals. This quarter saw our revenue increase by 14.4 percent (last 12 months year-on-year) in constant currency... We had transformational deal bookings in excess of $1 billion," HCL Technologies President and CEO Anant Gupta said.

These engagements were primarily driven from industries like consumer services, manufacturing and public services and the European region, he added.

"We have seen our margins to be in the 21-22 percent range and we have delivered on those lines. We expect it to continue on similar lines," Gupta said.

The company has announced a dividend of Rs. 4 per equity share. Its cash and cash equivalents stood at Rs. 838 crores at the end of March 31, 2015.

"Operating margin metrics and enhanced working capital requirements have impacted our cash flows and are an outcome of our focused investment agenda for enhancing capability build up and delivery dynamics of large engagements," HCL Technologies CFO Anil Chanana said.

During the quarter, HCL Technologies added 11,041 people (gross) and 3,944 (net), taking its total headcount to 1,04,184 as on March 31, 2015.

HCL has signed 14 transformational engagements during this quarter adding up to more than $1 billion of total contract value, led by consumer services, manufacturing and public services verticals.

In US dollar terms, HCL Technologies' net profit grew 2.3 percent to $270 million, while revenue rose 9.5 percent to $1.49 billion in Q3 of FY 2014-15 from the year-ago period.

Revenues from Americas, Europe and Rest of the World (ROW) grew by 13.6 percent, 22 percent and 6.9 percent, respectively, on year-on-year basis.

Revenue from Business services grew by 34.6 percent, engineering and R&D services 32.4 percent, infrastructure services 16.1 percent and application services 6.9 percent.

The vertical growth was led by telecommunications, media, publishing and entertainment at 23.5 percent, followed by life sciences and healthcare at 21.1 percent and public services at 16.6 percent.

Financial services grew at 15.4 percent, while retail and CPG and manufacturing grew by 14.8 percent and 14.4 percent, respectively.

Talking about growth, Gupta said the next generation IT outsourcing and digitalisation offers tremendous opportunities of growth and the deal pipeline ahead looks larger than last year.

"We also continued to make significant investments in expanding our global footprint, opening several new onsite facilities and co-innovation labs to facilitate exponential advantage in key emerging growth areas like enterprise digitalisation and engineering services," he added.

He said that six such centres will be set up in the next few quarters (apart from existing ones in Bengaluru and London) specialising in different industry verticals.

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