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HCL Tech: Wage hikes and forex weigh on profits

Nov 10, 2011

HCL Technologies Ltd (HCL Tech) has announced the first quarter results of financial year 2011-2012, ends June 2012 (1QFY12). The company has reported an 8.2% QoQ growth in sales and and a 2.7% QoQ decline in net profits. Here is our analysis of the results.

Performance summary
  • Net sales grew by 8.2% QoQ in 1QFY12 (The company has a June year ending). This was driven by the growth across all geographies and service offerings except BPO service offerings which reported a muted growth the quarter. The company witnessed a 5.1% growth in volume during the quarter.
  • Operating margins declined by 1.4% QoQ to 17.1% during the quarter as compared to 18.5% seen during the previous quarter (quarter ended June 2011, 4QFY11). This was mainly due to higher direct costs and 'Selling, General and Administration' expenses (both as a percentage of sales). Direct costs were higher, largely on account of salary hikes given in the month of July 2011.
  • Added 3,474 (net) employees during the quarter. Total employee base at the end of September 2011 was 80,520. Attrition rate came down to 15.9% as compared to 16.5% seen at the end of the previous quarter (4QFY11).
  • Net profit declined by 2.7% QoQ during the quarter. This was largely on account of lower margins at operating levels and forex loss during the quarter. Effective tax rate was also higher at 25.8% as compared to 25% seen during 4QFY11.
  • Added 66 new clients during the quarter. The total number of active clients at the end of September 2011 was 480.
  • Proposed an interim dividend of Rs 4 per share (yield of 0.9%). This includes one-time milestone dividend of Rs 2 per share on HCL Tech crossing US$ 1 bn in its quarterly revenues.

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