HCL Technologies, India’s No. 4 IT services exporter, reported quarterly revenue that grew at a slower pace than that of its rivals, sending its shares lower though profit beat market expectations by rising 64 per cent.
HCL relies heavily on contracts to manage data centres and networks for revenue growth, whereas peers Tata Consultancy Services Ltd and Infosys Ltd earn a greater proportion of revenue from higher-margin software services.
HCL’s revenue in dollar terms grew 3.6 per cent in July-September from April-June. This compared with 3.8 per cent at industry No. 2 Infosys, and 6 per cent at industry leader TCS, thanks in part to an acquisition in France.
Hardik Shah, an analyst at KR Choksey Shares and Securities, was expecting 4 per cent, making HCL’s topline “a bit disappointing.”
Consolidated net profit for the three months ended September 30 was 14.16 billion rupees, compared with the 13.36 billion rupee average of 25 analyst estimates according to Thomson Reuters I/B/E/S.
Shares of HCL fell on Thursday after the company announced earnings by as much as 2.6 per cent to 1131.20 rupees.
“It’s a high dependence on one vertical, that’s why the company is trading at a discount compared to the peers,” Shah said by phone from Mumbai, referring to infrastructure services, or the remote management of data centres and storage networks.
Infrastructure services accounted for 33.1 per cent of revenue in the September quarter compared with 26.6 per cent a year earlier. Software application services, the staple of India’s $108 billion outsourcing industry, accounted for 45.7 per cent from 50.8 per cent.
“The infrastructure business is largely underpenetrated, globally, less than 5 per cent from an Indian (vendor’s) standpoint,” said HCL Chief Executive Anant Gupta in a conference with reporters. “We’ll see significant growth over there, in that business.”
HCL’s infrastructure services rose 8.8 per cent in the September quarter, while software services rose 1.1 per cent.
Infrastructure services currently yield profit margins that are lower by a few per centage points compared with software services, said Chief Financial Officer Anil Chanana.
HCL can raise infrastructure services margins by supporting customers migrating to cloud computing, Gupta said. Under this model, companies rent processor power and storage rather than buying them.