HCL Technologies Q2 Results: Profit Rises; Margin Guidance Raised

HCL Technologies Ltd.’s quarterly profit rose, surpassing estimates, as constraints led by the coronavirus pandemic eased.

“This growth momentum was driven by our continued leadership in digital transformation and cloud businesses, and a strong stability in the products and platforms segment, all of which continue to open diverse growth avenues for us,” C Vijayakumar, president and chief executive officer at HCL Tech, said in a post-earnings release. “Our investments over the last few years in next-gen technologies have held us in good stead during these difficult times and positioned us strongly to leverage the emerging market opportunities.”

According to Chief Financial Officer Prateek Aggarwal, the standout performance for the quarter has been the cash generation and conversion ratios. “Our operating cash flow and free cash flow stand at $2,692 million and $2,444 million, respectively on last 12-month basis, with OCF/NI (net income) and FCF/NI conversion at 161% and 146%.”

HCL Tech, however, has maintained its revenue guidance for the remaining two quarters of the ongoing financial year. It expects revenue to increase sequentially by an average 1.5-2.5% in constant currency in third and fourth quarters as well as for FY21, as projected during the April-June quarter. The company, however, has raised its EBIT margin guidance to 20-21% from 19.5-20.5% forecast earlier.

The company's optimism stems from easing supply-side constraints and aided by a healthy pipeline across service lines, verticals and geographies. HCL Tech signed 15 deals, lead by key industry verticals, including life science, healthcare, public services and manufacturing.

That offset the pain caused by the pandemic. India’s technology companies had witnessed an increase in cost in the previous two quarters as employees worked from home after the coronavirus pandemic froze trade across the world. The firms even lost billings as they generate most of their business overseas and the bulk of it comes from clients in financial services, manufacturing and communications sectors.

HCL Tech's peers Tata Consultancy Services Ltd., Infosys Ltd. and Wipro Ltd., too, reported a rise in earnings and margins in the quarter ended September. India's two largest company even resumed salary hikes.

Shares of HCL Technologies ended 3.8% lower at Rs 827.1 and was the second worst performing stock on the Nifty 50 index. This was the biggest single-day drop in the stock in over five months.

Other Key Highlights

• IT and business segment revenue up 4.9% from the previous quarter to $1,774 million
• Engineering and R&D segment revenue up 3.6% to $394 million
• Product & product platform revenue up 3.1% to $338 million
• Declared a dividend of Rs 4 per share.