The fourth quarter that ended in June brought profits beyond expectations to the doors of HCL. The announcement of the profits was followed by an announcement of the Founder Shiv Nadar’s daughter Roshni taking on the role of non-executive director of the company.
Apart from being the non-executive director, Roshni is also the executive director and Chief Executive Officer of HCL Corporation. HCL Infosystems (stock quote) and HCL Technologies (stock quote) are concerns of the Corporation. The total revenue of the parent company is estimated at about Rs 36,000 crore or $6 billion.
The market has been positive for peers like Tata Consultancy Services, Wipro and Infosys. Wipro has forecasted that their sales growth will be robust in the coming quarter. The bottom line reported by HCL shows an 11 percent growth and a 3.1 percent growth in sales.
HCL executive speak
Vineet Nayar gave up his role as Chief Executive to Anant Gupta at the beginning of this year. In his capacity as Chief Executive of the company, Anant Gupta was quoted as saying, “We had a great quarter and fiscal year on pretty much all counts starting form revenue, margin, net income and cash flow. Both Americas and Europe led the growth with most services line witnessing growth led by infrastructure.”
HCL BPO is amidst India’s most powerful IT services companies. Ranked fourth-largest, the company reported a net profit of Rs 1,210 crore ($214 million). The revenue was reported to be Rs 6,944 crore ($1.2 billion).
When a large number of contracts signed initially in the early 2000s came up for renewal, the company won a significant number of what is termed as re-bids. A whooping 63,000 crore or 60 percent of the company is owned by the promoters.
Understanding the profits
When such large profits register, scrutiny is but a natural consequence. The reason for the profits has been attributed to the IT services. The IT infrastructure management services saw a significant boost from the last quarter when it expanded by 8.6 percent.
HCL, aside from the current success, has traditionally had a stronghold on the IT services sector. The IT sector contributes to one third of the company’s revenue tagged at $4.7 billion.
Hardik Shah, equity analyst at the KRChoksey, a Mumbai based brokerage analyzed the growth and said, “The results are because of their performance in the infrastructure management space. They won some $1 billion of deals, with main contributions from infrastructure management, which will power growth in the near term. I do not expect any slowdown in the next year.”
The market scenario
The global financial crisis affected the Indian market just as much as it affected the rest of the world. The financial growth therefore has seen only tepid growth at best. The fortunes of the market however has turned more positive since last June.
TCS registered a growth of 4.1 percent while Infosys registered a growth of 2.7 percent against the 1.5 percent revenue growth that analysts had expected. This positive growth has the market looking forward to a profitable business year.
The outsourcing arm
HCL’s outsourcing concern had been steadily registering losses for several quarters. This June quarter turned out to be a game changer. The outsourcing arm registered a healthy growth of 3.9%. In comparison to the losses registered last year, this year saw a turnover of $53 million with a bottom line of $10.1 million.
The reason for the profits is tagged at the company moving away from low-margin, voice-based contracts according to Rahul Singh. He is the president of the financial services, vertical and business services division at HCL.
The healthy growth that the company registered also leads to a healthy employee utilization rate. Shah of KRChoksey was of the opinion that, “The utilization rate is over 80 percent, but that rate may not be sustainable.(sic) And with the rebid market being so competitive I do not think their margin levels are sustainable.”
Despite the bleak forecast, HCL seems to be looking forward to a long period of sustained growth. The IT major, with around 85,000 employees is giving an 8 percent salary hike for offshore employees and an increase of 3% in salary for onsite employees. The staff churn rates according to the company has increased by 0.9 percent over the 14 % of last year.