HCL Tech Q1 profit jumps 50% to Rs 497 crore

NEW DELHI: HCL Technologies, the country's fifth-largest software exporter, missed revenue expectations but crossed the $1-billion mark in quarterly sales to post a 50% yearly growth in net profit for the July to September period. The company, which counts companies such as Xerox, Mecom, Microsoft and the controversial News of the World among its clients, grew revenues for its first quarter ended September by nearly 25% to Rs 4,651 crore and net profit to Rs 497 crore, up 50% from last year.

The company will credit the equivalent price of its five shares in the payroll of its 80,500 employees for this month's salary, on achieving the billion-dollar-sales mark.

Net profit for the company since last quarter, however, declined in dollar terms by 6% on account of a 12-14% salary hike, currency movements, and a capital expenditure incurred in its first quarter ended September 30 to open new centres overseas.

The Noida-based company's stock declined 8.5% on the BSE on Tuesday in a weak market. HCL's bigger rival TCS which had posted weaker-than-expected results on Monday, declined 8.2%, making the IT indices tumble.

"The macro-economic situation is bad. But it is not necessarily translating into weaker business. A lot of churn in the existing deals in the market is translating into new business for us," said HCL Technologies CEO Vineet Nayar. The company won 12 new deals in the quarter, from companies like EMI Music, Vancouver City Savings Union and renewed existing ones such as Deutsche Bank.

"The world IT budgets are either static or declining. The industry is operating at billing rates pre-recession in 2008. Its time IT services moved into a declining cost scenario as with IT hardware and electronics which become cheaper every year," he added.
The company has about $500 million in cash, and a hedge position of $713 million. It incurred an impact of about $3.8 million on forex losses. HCL Tech has projected $230 million to be spent in capex for this year. The stock options programme will cost the company about Rs 25 crore.

Analysts such as CLSA remain underweight on IT sector and companies such as HCL Tech. "HCL Tech missed moderated revenue growth expectations by some margin. Coming on back of a top line miss by TCS, this will surely raise the bogey of demand flux for the entire Indian IT space, said Nimish Joshi, analyst with CLSA.

But Nayar countered observations of analysts, saying, "If some analysts predict a higher growth for the IT industry in a world where IT budgets are almost flat, even good performers will start to look bleak."

CLSA has added that HCL's revenue growth was traded for margins and HCL's margins have now settled at a structurally lower level, much below peers. The company operates at net profit margin of 10.7%, and has projected flat margin growth for this year at 14%. In comparison Infosys and TCS operate at margins around 31% and 29%, respectively.