HCL Tech's Q1FY17 net profit rises 6%; analysts are happy

HCL Technologies – an leading offshore IT & software development outsourcing firm, reported Rs 2055.20 crore net profit for the June quarter ended 2016, registering rise of 5.97% quarter-on-quarter (QOQ).

The total income for the company stood at Rs 11,336.32 crore, rising by 5.96% qoq, boosted by software service and IT infrastructure business.

While operating profit (EBITDA – earnings before interest tax depreciation and amortization) was at Rs 2589.96 crore, increasing by 10.42% qoq. It’s operating profit margin (OPM) was 22.84%, expanding by 92 basis points qoq.

Strong performance; Robust guidance allays margin fears

HCL Tech strong performance has come at a time when peer revenue and margins were below expectations.

"Company has allayed fears of growth and margins by providing a robust FY17 guidance. Company has guided for FY17 revenue growth of 12%-14% in CC terms and 11.2%-13.2% in USD terms and EBIT margin range of 19.5%-20.5%. Both the revenue and margin guidance have come ahead of street expectations. Consensus was building EBIT margin of 18.5%-19.5% and we see 5-8% EPS upgrades to consensus," JM Financials said. 

Both the revenue and margin guidance have come ahead of street expectations. Consensus was building EBIT margin of 18.5%-19.5%.

"HCL Tech strong performance has come in an environment when peer revenue/margins were below expectations. We expect stock to re-rate to 15x FY17 EPS. We have Accumulate rating with TP of Rs890. We will review our rating and TP post conference call," it said. 

In comparison with its peers, HCL Tech revenue grew by 6% QoQ in CC terms and 6.5% in USD to 1,691 million. Also, organic revenues have grown  4% QoQ in CC terms, which is much better than the Infosys(1.7%), TCS (3.1%), Wipro (flat QoQ) Tech Mahindra (down 0.5%). EBIT margins declined 20bps to  20.6% which is 100bps ahead of expectations. Company has been able to maintain margins despite impact of Volvo integration, JM Financials said.

On the standalone basis, the net profit for HCL Tech was around Rs 1799.29 crore, growing by 7.64% qoq. Whereas total income was at Rs 4608.80 crore, slightly down by 0.08% against Rs 4612.64 recorded in the preceding quarter.

It’s standalone operating profit was registered at Rs 2109.06 crore, rising by 13.14% qoq. Also, the company recorded OPM to 45.76%, expanding by 534 basis points qoq.

The top-line was was boosted by IT infrastructure business which witnessed growth of 16.60% to Rs 4513.98 crore from Rs 3871.19 crore in the preceding quarter.

The company has mentioned only quarter-on-quarter data on exchange, as it has adopted the change during the previous financial year and accordingly the previous financial year of the company was for the nine month period from July 1, 2015 to March 31,2016. Since the previous year was from July 1, 2015, there is no corresponding accounting quarter in that previous year.

The share price of HCL Tech is trading at Rs 839.85 soaring by 39.25 points or 4.90%.