India’s fourth largest software and services company, HCL Technologies, on Thursday came out with a disappointing set of numbers. The company reported a 2% decline in net profit for the January-March quarter at $285 million compared to the previous quarter, hurt by a contraction in margins led by decrease in business from its banking and financial services vertical. Its profits for the October-December quarter were at $290 million.
The Noida-based company’s revenue increased 1.3% to $1.58 billion during the three months through March compared to $1.56 billion the previous three months through December, the company said in its earnings statement.
HCL Technologies’ chairman Shiv Nadar in the earnings statement warned of emerging new age technology companies, “posing a threat to the dominance of traditional leaders” in turn putting pressure on the sales and earnings of blue chip companies.
“We have significantly enhanced our strengths in new age services and domain leadership through strategic client acquisitions,” said Anant Gupta, president & CEO, HCL Technologies.
Still, Gupta, highlighted the softness in orders from its banking and financial services clients as they are now focussed on addressing regulatory challenges in terms of outsourcing their works to third party companies such as HCL Technologies. These banks will first go in for captive centres to address their needs in the immediate term before they become comfortable with outsourcing, Gupta said, adding that the softness could prolong for another couple of quarters.
Gupta’s comments comes after HCL Technologies said in its latest earnings that the contribution for the more significant financial services vertical shrunk to 25% during the quarter, from 25% during the December quarter, and 26.1% in the March quarter of the previous fiscal. Revenue mix from its second biggest segment manufacturing also declined to 31.4% from 31.5% in the previous quarter, and 33.5% during the same period a year earlier.
However, its revenue contribution from life sciences and healthcare increased to 12.8% from 12.2% sequentially, while public services contributed 11.1% from 10.6%, the company said. Among the geographies, revenue from Americas increased to 62.5% from 61% in the previous quarter, while the mix from Europe declined to 28.4% from 29.9%. The revenue mix from its rest of the world operations, which does not include India, was flat during the quarter at 9.1%
Profits were partially hurt as Ebidta margins shrunk to 22.2% from 22.5% a year earlier, but improved marginally from 21.5% a quarter earlier.
The on-year fall in Ebidta margins was because the company had more time and material contracts constituting 43.2% of its revenue mix during the quarter and less of high-margin managed services and fixed price contracts contributing about 56.8%. During the past quarter, time and material projects were at 57% of revenue, while the remainder 43% came from managed services and fixed price projects, the company said.