HCL beats expectation to report 23% growth in net profit; no guidance for FY21

Noida-based information technology (IT) services firm HCL Technologies has reported a higher-than-expected net profit for the March quarter, which grew 23% year-on-year (y-o-y), indicating that Covid-19 did not have much impact on the company in the previous quarter. 

The company said it would not provide guidance for FY21 due to uncertain business circumstances induced by Covid-19.

The company reported a growth of 16% in revenue, compared to the same quarter in the previous fiscal. 

However, while the first quarter will take a major hit, the company expects the business environment to improve in the second half of the year, assuming there is no resurgence of Covid-19 cases around the world, C Vijayakumar, CEO of HCL, said.

IT companies, which net around 70% of their income from the European and North American markets, are expected to take a hit during the April-June quarter, with most countries under lockdown.

Firms including IBM, Cognizant, Infosys and Wipro have withdrawn or deferred guidance for the current year.

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HCL reported a net profit of Rs 3,154 crore during Q4, representing a 3.8% quarter-on-quarter (q-o-q) growth. The company’s revenue saw a 2.5% q-o-q growth to record Rs 18,590 crore during the March quarter.

For the full year, HCL reported a net profit of Rs 11,062 crore, a 9.3% increase over the previous financial year. The company’s FY20 revenue stood at Rs 70,678 crore, a hike of 17% over FY19. 

The company’s growth has been higher than the 14-16% projection it provided at the beginning of last fiscal.

“There are a lot of variables and uncertainties and we don't know what we don't know. We are coming into this crisis from a strong position of industry-leading growth for over four years. Our investments in the intellectual property-based portfolio is also very relevant now and we expect to increase our market share over the next three years, while growing at a higher rate than the industry,” Vijayakumar said.

The company, which witnessed a 50% drop in attrition in April, will slow down hiring, it said, adding that it would honour all fresher offer letters. The company will take a call on promotions and salary hikes at the end of June, as it does every year.

The firm has a gross cash surplus over $2 billion, while its net cash surplus stood at $1.3 billion at the end of the financial year, which it hopes to use to acquire companies at an attractive valuation, CFO Prateek Aggarwal said.

Meanwhile, Covid-19 will force several companies to accelerate their digitalisation journeys, Vijayakumar said. 

“We have invested in cybersecurity, cloud and internet of things -- all of which are expected to grow at a faster clip, while engineering and infrastructure services growth will accelerate once the demand situation improves,” he added.

HCL saw its $100 million-plus customer base increasing from 10 to 15 during FY20, while its operating margin was stable at 19.6%. 

The firm’s overall employee base crossed 1,50,000 globally, even as it enabled work from home (WFH) for 96% of its employees.

“We expect 50% of our workforce to WFH over the next 12-18 months on a rotational basis. Despite the easing of lockdown, 90% of our employees continue to WFH and the productivity has remained stable,” Vijayakumar said.

IT firms are staring at a washout year as Covid-19 has pushed the world into a recession. While the financial sector may recover a bit this year, the overall sentiment is unlikely to provide succour for the companies.

Last week, Tech Mahindra became the first IT company to see a sizable impact from the Covid-19 crisis. However, the firm may likely be most resistant to the pandemic’s impact.