HCL bets on non-US traction

Maintains margins as revenue jumps 24%, net profit 23% in Q1

MUMBAI: HCL Technologies, the country’s fifth-largest software exporter, sees greater growth opportunities from Europe than the US, its traditional stronger market.

It has also managed to prod open the geographies Down Under, with Australia and New Zealand operations growing at almost 100% annually.

“Currently, Europe dominates the large deal flow we are chasing, as compared with the US. In Europe, we are noticing strong traction in BFSI (banking, financial services, and insurance) retail,” said Vineet Nayar, chief executive officer.

For the quarter ending September, Europe accounted for almost 31% of HCL Technology’s revenues, against 29% a year ago.

A stronger European revenue mix is likely to benefit margins since European currencies like the euro and pound have been stable-to-positive versus the Indian rupee, in contrast to dollar, which has lost about 10% since the beginning of the calendar.

Over the last four quarters, HCL’s Europe revenues have grown by 11.3% annually, against 9.3% overall for the company. Australia and New Zealand revenues have grown by 19% per quarter.

“Our non-US revenue grew 62% year-on-year. Our US dependency has come down to 54% from 60% a year ago and the trendline continues.

Australia, Japan, Europe are all fast-expanding geographies and all our service lines, be it infrastructure, engineering or applications, are firing on all cylinders,” Nayar said.

The company sees strong growth in life sciences, aerospace and automotive and financial services spaces.

For the July-September quarter, HCL has registered a 24% growth in revenues at Rs 1,709 crore, even as net profit, too, climbed 23% to Rs 308 crore.

Sequentially, revenue was up 6%, though net profit was down 37% on account of an exceptional foreign currency gain of Rs 25 crore in the April-June quarter.

“In spite of wage inflation and rupee volatility, we managed to keep our EBIT (earnings before interest and taxation) margins constant at 17.3%,” Nayar said.

During the quarter, the company managed to push up volumes by 8.1% and realisation by 1.4%, thanks to changes in the services mix and higher billing rates.

A 12-15% offshore and 3-5% onsite wage increase saw EBIT margin being impacted by 172 basis points, and a record intake of 3,600 people saw a dip in utilisation rate, which shaved off 39 basis points from margins.

Higher realisation (121 basis points) and change in selling, general and administrative expenses and services mix (92 basis points) managed to neutralise the impact.

Owing to a ramp-down by its second-largest business process outsourcing (BPO) customer, HCL’s BPO business was flat.

The division’s overall contribution to revenues fell to 12.8% from 13.6% in the previous quarter. The said client accounted for 13% of BPO revenues last fiscal and 5% last quarter.

According to Ranjit Narasimhan, president and CEO, BPO Services, the company is likely to see a slight dip in BPO revenues during the current quarter, which would be made up over the rest of the year.