HCL Tech shares fell as much as 9.6 per cent to a low of Rs 1,496.95 on the BSE on Friday. The stock was the top loser on the 50-share Nifty as well. Shares in India's fourth largest software services outsourcer came under heavy selloff on the back of weaker-than-expected first quarter earnings announced today.
HCL Tech shares fell as much as 9.6 per cent to a low of Rs 1,496.95 on the BSE on Friday. The stock was the top loser on the 50-share Nifty as well. Shares in India's fourth largest software services outsourcer came under heavy selloff on the back of weaker-than-expected first quarter earnings announced today.
Here are the reasons for the sharp selloff in HCL Tech shares,
1) HCL Tech's dollar revenues grew 1.9 per cent sequentially to $1,433 million. For most IT services companies, analysts and investors track the dollar sales numbers as clients overseas get billed in dollars. Among the three big IT companies, HCL Tech's dollar revenue growth was the weakest in the September quarter. TCS dollar revenue growth (organic) was 4.6 per cent, while Infosys last week reported a 3.1 per cent sequential rise in revenues.
2) HCL Tech's operating margin (23.9 per cent) in the September quarter was ahead of Street estimates, but was much lower than TCS (26.8 per cent) and Infosys (26.1 per cent). HCL Tech relies heavily on contracts to manage data centres and networks for revenue growth, whereas peers Tata Consultancy Services and Infosys earn a greater proportion of revenue from higher-margin software services. Profit, in rupee, was boosted by other incomes of Rs 358 crore during the reporting period.
3) Performance in the US market was good (5.7 per cent growth in revenues), but was weak in Europe (revenue growth fell 0.3 per cent sequentially) and Rest of the World (-8.6 per cent). During the September quarter, US market contributed 56.3 per cent to overall revenues, Europe 32.3 per cent and ROW 11.4 per cent.
4) HCL Tech's annualized attrition fell from 16.9 per cent in June quarter to 16.6 per cent in the September quarter, but is higher than TCS (12.8 per cent). Its utilization dropped to 82.7 per cent in the September quarter unlike Infosys and TCS, both of which managed to increase their utilization during the quarter. This impacted profits.
5) Over the last year, HCL Tech shares have gained around 39 per cent, outperforming TCS (16 per cent) and Infosys (19 per cent). However, with Infosys coming back strongly in the September quarter and both TCS and HCL Tech faltering, some money is likely to go out of HCL Tech. This led to Friday's slump, analysts say.
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