HCLTech Q1 net profit up 8% to Rs 3,534 crore, misses estimates

HCLTech reported a 7.6% on-year rise in net profit for the fiscal first quarter, missing estimates due to project ramp downs mainly in its technology and telecom verticals even as it signed fewer deals in the three-month period amid overall macroeconomic uncertainty.

India’s third largest software company, however, maintained its revenue growth guidance of 6-8% as well as 18-19% operation margin for the fiscal year.

For the quarter, net profit stood at ₹3,534 crore compared with ₹3,283 crore last year. Revenue grew 12.1% on year to ₹26,296 crore, also missing analysts’ estimates, hurt by ramp downs across projects. An ET poll of analysts estimated pegged net profit to grow by 17% on year and revenue to grow 14%. On a sequential basis, net profit was down 11.3%, while revenue was up 1.2%.

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“I wouldn’t say any project is entirely cancelled but there have been sporadic ramp downs in telecom and technology (verticals). These are the two where we see some stress which is also visible from our numbers,” said CEO C Vijayakumar.

But the US-based executive termed demand as undergoing a “cycle” where cost-efficiency based deals in manufacturing and banking and financial services have more than made up for the cut in discretionary spends over the previous quarters.

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The financial services, manufacturing and life sciences, that make up for over 60% of company’s revenue, saw a double-digit growth on year. But telecom, media and technology (TMT) and services verticals fell 7% and 11.7% on year during the three-month period.

“In telecom and tech verticals, maybe we are a quarter behind (in terms of recovery)….macro-economic aspects do play into clients’ mindset,” he added.

The board has declared an interim dividend of ₹10 per equity share. HCLTech shares ended down by 0.4% at ₹1,110 on the BSE at close.

Earlier in the day, Tata Consultancy Services, India’s largest software exporter, also warned that the demand outlook continued to be “soft and uncertain” for the near term with clients withholding spending on discretionary and non-critical projects.

HCLTech’s operating margin for the April-June quarter stood at 17%, down 110 basis points sequentially and remained flat year on year.

Chief financial officer Prateek Aggarwal said operating margin was hurt in what is usually a seasonally soft quarter for the company. “We have definitely put together an action plan which leads to us achieving the margin guidance. Part of that is what we are doing on the human resource front (deferring annual hikes by a quarter),” he said.

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