HCL Technologies Slips 2% After June Quarter Results

Shares of HCL Technologies were down 2.5% on the BSE today after the company's results for the June 2021 quarter missed street estimates.

The company reported muted earnings compared to its peers with the topline growing by a mere 0.7% quarter on quarter (QoQ) in constant currency terms.

It also reported a 2.2% rise in consolidated revenues for the quarter at Rs 200.7 bn, which was slightly below analysts' expectations.

On the operating front, the quarter was tough for the company as consolidated operating profit slumped 5.3% sequentially due to the impact of wage hikes. Further, its consolidated operating margin shrank 1.6% sequentially to 24.5%.

While the top line fell a little short, the company's consolidated net profit met street estimates. HCL Technologies reported an 8.5% sequential rise in consolidated net profit at Rs 32 bn.

The board declared an interim dividend of Rs 6 per equity share for the financial year 2022.

Strong deal momentum to support revenue growth

HCL said that it expects its revenues to grow in double digits in the current financial year in constant currency terms.

The company also sees its operating margin in the band of 19-21%.

The deal momentum in the quarter remained firm for the IT services company as the deal book grew 37% year on year (YoY) to US$1.7 bn aided by eight large service deals.

HCL saw the addition of eight clients in the US$50 m bracket, 11 in the US$20 m bracket and 10 in the US$10 m bracket.

HCL Technologies Client Breakup (June 2017- June 2021)

The company's exposure to deeply troubled verticals such as energy, transportation, travel, hospitality, and retail are lower versus its peers, which bodes well for it in the near term.

It has a higher exposure to financial services, technology services, and life sciences, where there is a better outlook.

Higher exposure to Infrastructure Management Services or IMS (37% of revenue), comprising a larger share of non-discretionary spend, also offers a better resilience to its portfolio in the current context, with increased demand for cloud, network, security, and digital workplace services.

Shiv Nadar resigns as MD, named Chairman Emeritus

HCL Technologies said its founder Shiv Nadar has tendered his resignation with effect from 19 July 2021.

He will take on the role of Chairman Emeritus and Strategic Advisor to the company's board.

The payment of remuneration or providing any facilities under this role will be subject to the approval of the shareholders.

The company has appointed C Vijayakumar as President and CEO of the company, and as managing director for five years with effect from 20 July.

In a separate regulatory filing, the company said that it has appointed former IBM executive, Vanitha

Narayanan, to the board of directors.

Equitymaster's view on investing in the IT sector right now...

We reached out to Richa Agarwal, senior research analyst and editor of the smallcap stock recommendation service, Hidden Treasure, for her view on the IT sector.

Here's what she has to say about investing in companies in the IT sector right now -

• Post pandemic, amid liquidity in the global markets and broad-based growth momentum, the IT sector and the stocks listed in it have had a dream run.
  
  The BSE IT index is at a ten year high, up 70% from the pre-Covid highs.
  
  While picking stocks in the industry, one should be mindful of relative growth and valuation of companies in the sector.

How the markets reacted to HCL Tech's June quarter results today...

Shares of the company opened the day lower at Rs 991 on the BSE and Rs 999 on the NSE today after the company declared its results post market hours yesterday. The scrip then later fell over 2% on the exchanges.

The share touched its 52-week high of Rs 1,073.3 and a 52-week low of Rs 627 on 13 January 2021 and 20 July 2020.

Over the last 30 days, the share price of HCL Technologies has remained flat. In the year to date also, the share price has moved up by only 3.1%.

About HCL Technologies

HCL Technologies is an Indian multinational information technology (IT) services and consulting company, headquartered in Noida, Uttar Pradesh, India. It's a subsidiary of HCL Enterprise.

Originally a research and development division of HCL, it emerged as an independent company in 1991 when it entered into the software services business.

The company has offices in 32 countries including United Kingdom, United States, France, and Germany with a worldwide network of R&D, innovation labs, and delivery centres.

It has over 160,000 employees and its customers include 250 of the Fortune 500 and 650 of the Global 2,000 companies.

It operates across sectors including aerospace, defence, automotive, banking, chemical and process industries, energy, and utilities.

For more details about the company, you can have a look at HCL Technologies factsheet and quarterly results on our website.

You can also compare HCL Technologies with its peers.

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Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...