HCL Technologies , India’s fourth largest software services firm, on Wednesday posted a better-than-expected rise in Jan-March profit, clearing the concerns that clouded the outsourcing sector after Infosys’ weak quarterly performance.
Shares of the company, which the market values at $7.34 billion, surged as much as 9.8% to a 11-year high of Rs522.35, in a Mumbai market that was up 0.91%.
The BSE IT index was up 1.70%. At 11.37 a.m, the stock was 7% higher at Rs508.9.
HCL, which follows a July-June fiscal, reported a 33% rise in net profit to Rs468 crore and 31.5% in revenue to Rs4,138 crore.
Profit was expected to rise 25% to Rs430 crore, according to a Reuters poll of 17 analysts. Revenue was seen at Rs4,079 crore.
“People also have it somewhere in their mind that what happened with Infosys was more of a company specific issue with changes in the senior management,” PINC analyst Rohit Anand said, adding HCL Tech’s earnings should ease investor concerns about a downturn in the sector.
Last week, Infosys Technologies Ltd kicked off results for India’s nearly $60 billion IT sector, sparking worries about the sector’s growth after it forecast annual sales lower than expected on slower client spending.
India’s No.2 software services exporter, in its latest management shakeup, said its human resources chief T.V. Mohandas Pai had quit. Pai, the former CFO, was widely seen by analysts as the only non-founder who could become CEO.
A slew of brokerages downgraded the target price of the Infosys shares, citing concerns over its earnings and lower forecast.
“We have seen Accenture and Cognizant growing much better. It will be further substantiated from the TCS results,” PINC’s Anand said.
“If they also give good results then we can take it for sure that it was a one-quarter blip at Infosys than a sectoral problem.”
Last month Accenture posted a strong quarter and raised its outlook for the full year.
In February, Cognizant Technology Solutions Corp , known for its conservative outlook, also forecast strong 2011 results.
January-March is a seasonally weak quarter, as clients generally finalize their budgets for the next fiscal during this period, leading to a spurt in spending in the first two quarters of the upcoming fiscal year.
During the third quarter, HCL’s business outside Europe and the Americas grew as much as 81%. All its service offerings also showed strong growth of 34-43%.
“Results were strong on various fronts. There was margin improvement, cash flow improvement, strong revenue growth momentum, volume growth was good,” said a Mumbai-based analyst, who did not wish to be named.
“All these things lead you to believe that there are no concerns in the industry per se and what happened with Infosys was a one-off case.”
Net employee addition — a key parameter of the IT sector’s health — stood at 1,153 for the period, taking the total headcount to 73,420.
HCL also said it bought certain software assets from Citibank International Plc during Jan-March for $26 million, revenues from which are expected to come from the middle of its fourth quarter this year.
Through the deal, HCL is also taking over 41 employees from Citi and an “assured revenue stream” of $135 million spread over 10 years, HCL said in a statement.
A slight depreciation of the rupee against the dollar, making up for a dip in utilization rates, somewhat aided HCL’s core operating (EBITDA) margins for the period, improving by about 1 percentage point from the December quarter to 17.3%.
The rupee weakened about half a percentage point against the dollar during Jan-March.
Indian software companies, which get most of their earnings in foreign currency, hedge some of the risk, but with a chunk of their costs being in rupees, currency appreciation tends to squeeze margins.
Source:http://www.livemint.com/2011/04/20092429/HCL-Tech-strong-Q3-eases-conce.html