HCL beats Street estimates, Q4 net profit up 27%

HCL Technologies’ net profit rose over 27 per cent to ~2,475 crore for the March quarter of FY17. The firm surprised the Street with a high growth forecast for this financial year, at a time when larger peers have been conservative.

HCL Technologies, the country's fourth largest information technology (IT) services entity, surprised the Street with a high growth forecast for this financial year, at a time when larger peers have been conservative.

Noida-based HCL says it expects revenue growth of 10.5 to 12.5 per cent in constant currency for 2017-18. Larger peers Infosys, Cognizant and Wipro have given a single-digit or flat growth estimate, due to global uncertainties and anticipated cost pressure with a push for local hiring in the US. Industry body Nasscom has delayed its growth forecast for FY18 by a quarter, citing uncertainties.

Indian IT services entities also see a challenging time ahead, with the decline in traditional technology and increasing client demand for services through digital technology such as cloud.

HCL, however, says it is not perturbed by the sectoral and global head winds .“We have been investing in the US market over many years and our visa dependence is very low. Also, about 55 per cent of our workforce in the US are locals and we are not worried,” said C Vijayakumar, president and CEO.

Sector analysts say HCL’s strong growth forecast is largely fuelled by “significant inorganic contribution”. “We expect the inorganic business contribution through acquisitions of an US based engineering service provider and Geometric to boost HCL’s growth this year. The engineering services market is growing faster than traditional IT services,” said Pareekh Jain, analyst at HfS Research India.

The company reported nearly 21 per cent growth in net profit to ~ 2,325 crore for the March quarter. Revenue grew by 20 per cent to ~12,053 crore. During the corresponding period last year, net profit was ~1,926 crore, on revenue of ~10,698 crore.

In the quarter, the operating margin (earnings before interest and taxes or Ebit) was 20 per cent. HCL saw a sharp rise in its digital technology business and platform-based services.

“Our Mode 2 and 3 services, which focus on new growth areas like digital, cloud, security and IoT, as well as products and platforms, registered a very impressive 30.9 per cent growth in FY17. Our differentiated employee engagement practices, underlined by a focus on next–gen learning and development, helped us reduce (staff) attrition rates to 16.9 per cent. We will continue to accelerate investment in high–growth areas,” said Vijayakumar.