Q1 Results: HCL Technologies’ Profit Misses Estimates As Margin Contracts

HCL Technologies Ltd.'s net profit missed the lowest analyst estimate in the quarter ended June as margin contracted.

Net profit rose 12.5 percent quarter-on-quarter to Rs 2,230 crore in the April-June period, according to the software services provider's exchange filing. That compares with the Rs 2,378-crore estimate of analysts tracked by Bloomberg.

Revenue in dollar terms rose 3.8 percent to $2,364 million—in line with the $2,312-million estimate. In constant currency terms, the top line grew 2.7 percent to Rs 15,990 crore, also meeting the Rs 16,154-crore forecast.

Its earnings before interest and tax rose 7.8 percent to Rs 2,748 crore, while the Ebit margin contracted to 16.7 percent from 18.6 percent in the preceding quarter. The rupee strengthened 0.41 percent during the period.

“While our margin in this quarter were muted in line with our investment strategy to leverage future growth opportunities, I am confident that our time-tested operating model will deliver margins within our guided range this year,” President and Chief Executive Officer C Vijayakumar said. “With our current momentum, we aspire to register an industry-leading organic growth in FY20.”

Deal revenue and margin will flow from the next quarter, the company's Chief Financial Officer Prateek Aggarwal told Bloombergquint. There are a number of cost improvement actions which are already underway, he said, adding that the company was sure it will start delivering better margin next quarter onwards.

The company, however, maintained its revenue growth guidance at 14-16 percent in constant currency terms and the margin guidance at 18.5-19.5 percent for FY20. At a post-earnings press conference, Vijayakumar said that they were confident of hitting the revenue guidance for the year. He expects the company to exceed the guidance given its current “run rate”. “Looking forward, the macro environment remains a bit volatile in the light of interest rates and some of the tariff situations.”

HCL Technologies also announced a dividend of Rs 2 a share—the 66th straight quarters of dividend payments.

The stock has gained more than 7 percent so far this year compared with more than 8 percent rise in the benchmark NSE Nifty IT Index.