HCL expects revenue to grow 12-14% in constant currency in the current financial year


NEW DELHI:HCL Technologies reported a better-than-expected profit for the quarter through June, backed by revenue from its deal with Swedish auto major Volvo Group and robust growth in existing business.

The country’s fourth largest software firm reported a net profit of Rs 2,047 crore, a 14.8% increase from the year earlier period. Analysts in a Thomson Reuters poll were on average expecting Rs 1,880 crore. Revenue rose 15.9% on year to Rs 11,336 crore. Sequentially, profit and revenue rose 6% and 6.3%, respectively, in rupee terms.

HCL’s robust results came after larger rivals Tata Consultancy Services, Infosys and Wipro reported somewhat muted earning for the quarter.

Beginning this quarter, HCL has also started giving yearly guidance in line with the industry practice. This comes after the company faced some questions on its growth prospects after revenue expanded 11.6% in the last fiscal year, which was lower than Nasscom‘s 12.3% average growth estimates for the industry.

HCL expects revenue to grow 12-14% in constant currency in the current financial year

Chief executive Anant Gupta said giving guidance will provide a certain “clarity” about the company given the “volatility” in the industry.

HCL said it expects revenue to grow between 12% and 14% in constant currency, or after removing the impact of currency fluctuations, in the current financial year. In dollar terms, the constant currency guidance translates to an expansion of 11.2-13.2%.

It forecasts operating margin to be in the range of 19.5% to 20.5%. The guidance suggests the company would exceed Nasscom’s 10-12% revenue outlook for the industry, at a time when analysts are questioning whether the industry body would trim its forecast given the uncertainty around Brexit.

Dipen Shah of Kotak Securities said results were better than expectations on the revenue and the profit side. “But, if you look at the guidance, it includes the acquisitions made by the company,” he said. “Excluding those, the organic growth of the company will be below the industry growth which Nasscom has put out. So that is definitely below expectations.”

Gupta said the deal renewal market continues to look good for the compa ny. Despite the concerns around Britain’s exit from European Union, both Europe and America have grown in double digits for HCL.

“No one knows what the real impact of Brexit will be. We have not felt any significant impact so far apart from the currency and we continue to watch the situation,” said Gupta. He said HCL is less likely to be impacted since the company’s operations are already well spread across Europe with only 8% of the revenue coming in British pounds.

Infosys has already lowered its full year revenue forecast to 10.5-12% in constant currency terms, lower than previously estimated 11.5-13.5%. Wipro, meanwhile, has said Brexit would impact discretionary spending in the near term, even as it guided for 0-1% growth in the second quarter, an all-time low.

C Vijay Kumar, who was recently appointed as chief operating officer, said HCL’s next generation offerings are helping the growth in existing client base and acquiring new logos. “We have been able to maintain our margins led by increased adoption of automation and higher offshoring.

Our layered hedging policy allowed us to manage significant currency volatility this (June) quarter and postexchange gains. A consistent performance of working capital management, together with efficient capital allocation, has resulted in return on equity at 28%,” said chief financial officer Anil Chanana.

During the quarter, HCL Technologies added 1,211 employees, taking its total headcount to 1,06,107. Attrition in IT services (on the basis of the last 12 months) was 17.8%, which the company termed as “seasonal” and not a matter of concern.