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Business News/ Companies / Company-results/  HCL Tech Q4 profit dips 2.8% to `1,783 crore
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HCL Tech Q4 profit dips 2.8% to `1,783 crore

Net sales jump 16.1% to `9,777 crore compared with the same period last year

Sequentially, net profit rose 5.9%, while revenue grew 5.5%. Photo: Ramesh Pathania/MintPremium
Sequentially, net profit rose 5.9%, while revenue grew 5.5%. Photo: Ramesh Pathania/Mint

New Delhi: HCL Technologies Ltd, India’s fourth largest software exporter, on Monday announced a decline of 2.8% in net profit to 1,783 crore for the three months ended June, compared with the year-ago period.

Net sales rose 16.1% to 9,777 crore compared with the same period last year. Sequentially, net profit rose 5.9%, while revenue grew 5.5%. In dollar terms, net profit was $279 million, an 8.8% decrease over a year ago, on revenue of $1.53 billion, up 9.3%.

In constant currency terms, revenue grew 16% over the same quarter last year.

Analysts had been expecting the company to post a consolidated net profit of $284.08 million on revenue of $1.51 billion, according to a Bloomberg poll. In rupee terms, net profit had been estimated at 1,824.5 crore on net sales of 9,672.9 crore.

HCL Technologies’ shares closed 5.94% lower at 937.40 on BSE on Monday, while the benchmark Sensex rose 0.26% to close at 28,187.06 points.

“We look at the business on a full-year basis. The revenues continued to be in the range that we have provided. Margins have also been pretty much in line with what we have planned. These are driven by certain decisions we took to accelerate certain areas, whether it is digitalization or co-innovation labs or increase in our spend on onsite in specially large deals. We also set up the co-innovation around some of the transformational pieces in their initial phases, before they moved into ramp-up stages where you can take advantage of them," said Anant Gupta, president and chief executive, HCL Technologies.

“More specifically, in the previous quarter and this quarter, we had a one-timer on visa expenses and others largely are the decisions we took earlier in the calendar year. For the full fiscal, we will be in the range that we have provided (21-22%). There will be certain quarters in between, where margins may be out of value, but that is because once the large deals move onsite in the steady state, they will decrease in their revenue profile," Gupta added.

HCL saw revenue growth of 3.2% sequentially (in dollar terms) in the June quarter, higher than that of bigger rivals Wipro Ltd and Tata Consultancy Services Ltd (TCS) which reported 1% and 3.5% growth, respectively. Infosys Ltd posted a revenue growth of 4.5%.

Last month, TCS, India’s largest software services company, beat analysts’ estimates by posting a 9.3% increase in revenue over the previous year to $4.04 billion, while its quarterly profit rose 6.2% to $898 million from $845 million a year ago.

India’s second largest software services exporter Infosys’s first quarter net profit fell 4.5% sequentially to $476 million, in line with estimates, but dollar revenue in constant currency terms surged 4.4% to $2.25 billion, ahead of forecasts.

Wipro, India’s third largest software services exporter, reported a net income of $344 million in the quarter ended June on the back of 1.1% sequential growth in revenue, which touched $1,794 million.

For the fiscal year ended 30 June, HCL Technologies posted a net profit of 7,254 crore, up 13.9% year-on-year, on revenue of 37,061 crore, which grew 12.6% over last year. In dollar terms, net income stood at $ 1.164 billion on revenue of $5.95 billion.

The growth was led by infrastructure services, which clocked revenues of more than $2 billion in the last 12 months, and financial services, where revenue exceeded $1.5 billion.

Analysts said that while the company’s revenue growth for the quarter has been in line with estimates, profit margins fell 122 basis points sequentially, compared with analyst estimates of an increase of about 60 basis points. A basis point is one-hundredth of a percentage point.

“HCL Tech’s June quarter revenues are largely in line, aided by strong performance in IMS (infrastructure management services) and BPO (business process outsourcing). However, Ebit (earnings before interest and tax) margins slipping to 20.2%, below the company’s guided range of 21-22%, is a negative surprise," said Emkay Research.

“More importantly, this margin performance is disappointing in the wake of slight currency depreciation and absence of wage hikes (which hit margins for most peers). We reckon that margins continue to be under pressure across the sector and HCL Tech’s results also reflect that trend," it added.

During the quarter, sequentially, the IMS vertical grew 5.5%, followed by 5.2% growth in the BPO segment. The software segment grew 1.6%.

Geographically, while US and Europe grew by 5.1% and 1.2%, respectively, over the last quarter, revenue from the rest of the world declined by 1.3%.

“HCL Technologies’ results were lower than our expectations, both on the revenues and margin fronts. There was a significant miss on the margin front. The relatively higher utilization rates coupled with the need to increase sales, marketing investments and investments in emerging businesses may continue to impact profitability in the short term," said Dipen Shah, head of private client group research, Kotak Securities.

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Published: 03 Aug 2015, 09:29 AM IST
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