India's HCL posts revenue growth that lags peers but profit soars

Reuters

* Books September-quarter profit of 14.16 billion rupees vs13.36 billion rupees estimate

* Relies on data centre and network services for growth

* Lags peers in revenue growth

By Harichandan Arakali

BANGALORE, Oct 17 (Reuters) - HCL Technologies,India's No. 4 IT services exporter, reported quarterly revenuethat grew at a slower pace than that of its rivals, sending itsshares lower though profit beat market expectations by rising 64percent.

HCL relies heavily on contracts to manage data centres andnetworks for revenue growth, whereas peers Tata ConsultancyServices Ltd and Infosys Ltd earn a greaterproportion of revenue from higher-margin software services.

HCL's revenue in dollar terms grew 3.6 percent inJuly-September from April-June. This compared with 3.8 percentat industry No. 2 Infosys, and 6 percent at industry leader TCS,thanks in part to an acquisition in France.

Hardik Shah, an analyst at KR Choksey Shares and Securities,was expecting 4 percent, making HCL's topline "a bitdisappointing."

Consolidated net profit for the three months ended Sept. 30was 14.16 billion rupees ($229 million), compared with the 13.36billion rupee average of 25 analyst estimates according toThomson Reuters I/B/E/S.

Shares of HCL fell on Thursday after the company announcedearnings by as much as 2.6 percent to 1131.20 rupees.

"It's a high dependence on one vertical, that's why thecompany is trading at a discount compared to the peers," Shahsaid by phone from Mumbai, referring to infrastructure services,or the remote management of data centres and storage networks.

Infrastructure services accounted for 33.1 percent ofrevenue in the September quarter compared with 26.6 percent ayear earlier. Software application services, the staple ofIndia's $108 billion outsourcing industry, accounted for 45.7percent from 50.8 percent.

"The infrastructure business is largely underpenetrated,globally, less than 5 percent from an Indian (vendor's)standpoint," said HCL Chief Executive Anant Gupta in aconference with reporters. "We'll see significant growth overthere, in that business."

HCL's infrastructure services rose 8.8 percent in theSeptember quarter, while software services rose 1.1 percent.

Infrastructure services currently yield profit margins thatare lower by a few percentage points compared with softwareservices, said Chief Financial Officer Anil Chanana.

HCL can raise infrastructure services margins by supportingcustomers migrating to cloud computing, Gupta said. Under thismodel, companies rent processor power and storage rather thanbuying them.

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