HCL Tech surprises with 58 per cent Q2 net growth

HCL Technologies, the fifth largest software and IT services company in the country, has reported second quarter results which have far exceeded market expectations. Strong volume growth and improved pricing has helped the company, like other frontline IT companies which have announced results.

HCL Tech's results had exceeded market expectations during the previous quarter as well. If the company can sustain this for the next few quarters, the stock may see a major re-rating as it is currently trading at a much lower discount when compared to its peers.

For the second quarter ended 31st December 2006, consolidated net profit has increased by a massive 58 per cent to Rs286.2 crore, or Rs33.51 per share, as compared to Rs181.1 crore, or Rs21.71 per share for the previous year quarter. Sequentially, net profit has increased 14.4 per cent from Rs250.3 crore, or Rs29.39 per share, for the previous quarter.

Consolidated income for the quarter was higher by 39 per cent at Rs1,465.1 crore as compared to Rs1,054.2 crore for the previous year quarter. As compared to the previous quarter, consolidated income increased 6.2 per cent from Rs1,379.4 crore.

In Dollar terms, net profit went up 60.8 per cent from the previous year quarter and 18.7 per cent sequentially. Revenue growth in Dollar terms was 41.4 per cent year-on-year and 10.2 per cent sequentially.

Operating profits increased 36.3 per cent year-on-year and 8.4 per cent sequentially to Rs324 crore. Operating margins as a percentage of revenues improved to 22.1 per cent from 21.7 per cent for the previous quarter, but declined from 22.5 per cent achieved for the previous year quarter.

Employee costs and other direct costs increased 38.74 per cent year-on-year and 4.61 per cent sequentially. Selling and general expenses were higher by 43.85 per cent from the previous year quarter and 9.77 per cent from the previous quarter.

The company posted a substantial rise in foreign exchange gains to Rs34.7 crore as compared to Rs1.4 crore for the previous quarter and a loss of Rs13.2 crore for the previous year quarter. Other income for the quarter was Rs13.4 crore as against Rs27.6 crore a year ago and Rs28 crore for the previous quarter.

IT Services division reported a revenue growth of 39 per cent year-on-year and 6.3 per cent sequentially. The division's operating margins improved to 22 per cent from 21.9 per cent a year ago and 21.6 per cent for the previous quarter. Revenue growth in BPO services was 38.9 per cent on a year-on-year basis and 5.4 per cent sequentially. Operating margins of the division dropped substantially to 22.9 per cent from 27.2 per cent a year ago, but increased sequentially from 22.4 per cent for the previous quarter.

Manufacturing domain contributed 29.7 per cent of total revenues while the share of BFSI increased to 27.2 per cent. Telecom contributed 16.2 per cent and retail pitched in with 10.6 per cent. Share of fixed price contracts remained stable at 29.3 per cent as compared to 29.2 per cent for the previous quarter.

In terms of geographic mix, US remained the mainstay with a share of 57.3 per cent. Europe contributed 29.2 per cent while Asia-Pacific's contribution was 13.5 per cent. In terms of service offerings, custom applications contributed 36.3 per cent of total revenues. Share of engineering services was 24.2 per cent and that of infrastructure services was 14 per cent. BPO services contributed 12.7 per cent of revenues.

The company added 23 new clients, taking the total number of clients to 230. Offshore revenues increased to 49 per cent from 48.2 per cent for the previous quarter but declined from 50.6 per cent a year ago. New business contributed 11.8 per cent of total revenues as compared to 12.5 per cent for the previous quarter.

HCL Tech added 580 employees during the quarter, taking the total employee count to 38,317. Employee attrition was 17.8 per cent for the quarter as compared to 19.5 per cent a year ago and 16.5 per cent for the previous quarter. Employee utilisation, excluding trainees, declined to 74.6 per cent from 76.4 per cent a year ago and 77.7 per cent for the previous quarter.