The Hindu Business Line : Good quarter for HCL Technologies

Good third quarter numbers from HCL Technologies, following strong numbers from Infosys may cause the markets to tone down its prolonged phase of pessimism towards the IT sector.

HCL Technologies has delivered reasonable third quarter numbers, with revenues growing by 7.1 per cent sequentially, while operating and net profits have grown 11.9 per cent and 2.9 per cent respectively.

Being a late entrant to the BFSI segment has in some respects helped HCL Technologies, compared to other Tier I companies.

In the latest March quarter, verticals such as Hitech, at 29.5 per cent of revenues, (including aerospace, automotive verticals) have overtaken BFSI (28.4 per cent) as a big contributor to revenues. The fast growing infrastructure management services, where HCL has a clear edge, contributes nearly 15 per cent of its revenues, much higher than other Tier 1 players.

With an ‘asset-light’ approach in IMS for the past year, this may lead to margin expansion. Telecom (16.5 per cent) has also grown and now is a key vertical.

Service mix

In terms of service mix, engineering and R&D services which command higher billing rates, have grown sequentially and now account for over a fourth of its revenues. The proportion of fixed price contracts, which enable better predictability to cash flows and realise better margins, has grown 2.8 percentage points in the March quarter and now stands at 35 per cent.

In terms of geographic spread, higher contributions from Asia-Pacific (14.5 per cent) and Europe (29.6 per cent) may reduce US centric problems that the business faces.

Deal wins continued at a strong pace, with the company winning nine $5-million-plus deals this quarter, two of these were large deals of $30 million and $40 million.

The company has been able to win such deals from relatively newer outsourcing geographies such as New Zealand and Australia. Trends in the vertical and service mix this quarter, if sustained, would pave the way for strong organic growth for HCL Technologies.

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