Analysts forecast drop in HCL Tech Q3 profits

Santosh Menon

NEW DELHI: HCL Technologies is expected to announce on Thursday growth in its

earnings, which had slowed sharply last quarter due to spending cuts by some key

global clients and a drop in other income. Estimates of year-on-year growth in

net income during the January-March quarter range between 59 to 93 per cent,

sharply lower than the 177 per cent jump reported by the firm in the previous

quarter.

"We are expecting a net income of Rs 1.075 billion ($22.95 million), up

65 per cent year-on-year. We have forecast net sales of Rs 3.55 billion, up 51

percent," Chetan Shah, software analyst at DBS Securities in Bombay, told

Reuters. HCL Technologies, which reports its results under the US accounting

format, posted net income of Rs 654 million during the January-March quarter of

2000.

Cazenove & Co in a recent research report forecast HCL's net profit for

the recent January-March quarter at $24 million and sales at $75 million, up 59

and 38 per cent, respectively. Priya Rohira at Bombay-based brokerage Pranav

Securities expected net income to rise 93 per cent to Rs 1.265 billion and sales

to rise 62 per cent to Rs 3.85 billion. During the firm's second quarter ended

December, HCL Technologies reported a net income of Rs 1.24 billion, up from Rs

448 million a year earlier.

Lower other income



Shah said the lower forecasts were based on a drop in other income and higher
tax payouts. He said HCL's interest income would be lower and added that gains

from foreign exchange fluctuations would not be much. DBS forecast other income

at Rs 174 million, down from Rs 264 million in the second quarter and Rs 181

million in the year-earlier period.

Analysts say the fall in other income will actually prompt a

quarter-on-quarter decline in net income. Margins were expected to improve,

reflecting the growing size of its offshore business. "On a year-on-year

basis, operating profit margins should rise about five percentage points. But

over the preceding quarter, there won't be much rise," said Shah of DBS.

Offshore revenue, or revenue from servicing overseas clients from its centers in

India, accounted for 63 per cent of total revenue in the second quarter.

Slowdown



Analysts said HCL Technologies could be hit by the ongoing global technology

slowdown, forcing some of its top global customers to cut spending. Its top five

account for 23 per cent of its revenue, and the top 10 customers for 35 per

cent. "HCL Technologies has substantial billings from global telecom firms.

Some of that could be hit given the problems in this space," an analyst

with a European brokerage said. "Firms like HCL are vulnerable in times of

slowdown as many corporations tend to cut down research and development

spending," an analyst at an American brokerage said. "But its order

book and its long-term relations should help it weather the storm."

Analysts said new client additions could get hit, although HCL Technologies

reported it bagged clients such as NCR Corporation, Vitesse Semiconductor

Corporation and Toshiba during the January-March quarter. HCL Technologies

counts several global companies such as Cisco Systems, NTT Data and EXE

Technologies among its over 300 customers worldwide.

(C) Reuters Limited 2001.