Wage hike may affect HCL Tech's Q1 margins

MUMBAI, INDIA: HCL Technologies Ltd, India's fourth-largest software services provider, said that its margin for the September quarter may drop by 300 basis points. According to chief executive Vineet Nayar, the drop is due to wage hikes in Q1 and new hires.

While interacting with the media here, Nayar also said this year HCL got more of transformational deals and not cost-saving kind of projects from customers.

HCL today posted a better-than-expected financial result with nearly 52 per cent jump in the net profit for the April-June quarter.

A Reuters poll of brokerages showed analysts expected profit to rise 45 per cent to Rs 494 rupees, on revenue of Rs 4318 crore.

India's top three software firms, Tata Consultancy Services (TCS), Infosys and Wipro have all in the past weeks warned of a volatile global economy which may reduce client spending.

Growth in India's $76 billion software services sector has slowed down in recent quarters due to global economic uncertainty, severe competition, rising wages, high staff turnover rates and management shakeups at Infosys and Wipro.

Most Indian IT firms see margins slipping sequentially for the June quarter, when they hike wages of employees - a key factor to tackle high attrition rates in the ultra-competitive industry.

HCL, which follows a July-June fiscal, however raises wages only in its fiscal first quarter, enabling it to post better margins compared to peers.

Steady state of affairs

Responding to the HCL financial results, Arup Roy, principal research analyst — Gartner, said there is no shocks or surprises in HCL’s Q4 results.

“It shows steady state of affairs with annual revenue growth of 31.1 per cent on YoY basis (in USD) which shows more or less the same growth story as it was last financial year for HCL,” he said in a statement.

“HCL Technologies positions itself as ‘CIO’s Best Friend’ and emphasizes its sharp focus on the reincarnated CIO to enable it to succeed in its business endeavors. Sharp focus and attention is now an essential element to capitalize on especially in the ‘new white space’ that is getting created in the various tiers of vendors that are playing the market place,” said Roy.

According to Dipen Shah, senior vice president (Private Client Group Research), Kotak Securities, the results were in line with their estimates.

“The 120 bps improvement in EBIDTA margins was positive. The improving macro scene and sustainability of revenues growth / improving margins, makes us positive on HCL Technologies,” he said.

(With inputs from CIOL Bureau)