HCL Technologies: Infrastructure services to drive quarterly growth

NEW DELHI: HCL Technologies is expected to retain its high growth momentum in the March 2014 quarter, the third quarter of its fiscal that ends in June. Revenue is expected to grow by 2.5% sequentially and by 30% year-on-year to Rs 8,392 crore. Net profit is expected to increase by 2% sequentially and by 46.5% from the year ago to Rs 1,523.3 crore.

The infrastructure management services (IMS) division will be the growth driver for the nation's fourth largest IT exporter. The company has been reporting a strong traction in this segment with large deal wins over the past several quarters. In comparison, the software services revenue are expected to grow at a slower pace.

"We expect USD revenue growth of 3.1% sequentially at HCL Technologies to USD 1,362 million. Growth in IMS is expected to remain strong, with our estimate of 6.3% sequential growth to USD 473 million," said Motilal Oswal Securities in a report. It expects software services to grow at over 1.4% over the previous quarter.

"For HCL Tech, we expect 3.3% sequential revenue growth led by strength in infra services," said Barclays India Equity Research in a report.

Partial wage increase from the previous quarter will be reflected in the financials for the March quarter. This is likely to reduce operating margin before depreciation (EBITDA margin) by around 40 basis points to 25.6%, according to Motilal Oswal Securities.

Infosys, during its earnings conference call on Tuesday, highlighted the slower offtake in long-term discretionary projects. HCL Tech's management commentary in this regard will be critical in determining whether it's an industrywide trend. The performance of the BPO division which reported a turnaround a year ago will also be important in assessing the extent of the future growth.