Indian outsourcer HCL Technologies quarterly profit up 6.9 percent to $74M on strong demand

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Indian outsourcer HCL quarterly profit up 6.9 pct

MUMBAI, India — Indian outsourcer HCL Technologies Ltd. said quarterly profit grew 6.9 percent in dollar terms, beating expectations on strong global demand for software services despite weaker European currencies and rising staff costs.

A war for talent among India’s outsourcers is pinching margins as companies offer raises and other perks. Austerity in Europe — the second-largest market after the U.S. for Indian software services — has cast a shadow over the sector, and declines in European currencies hit revenues during the quarter ending in June.

HCL’s profit for the April-June quarter was 3.42 billion rupees ($74 million), the company said Thursday. Revenue was 34.25 billion rupees ($738 million), up 21.5 percent in dollar terms.

“On one side you are seeing revenue growth,” said chief executive Vineet Nayar in a conference call. “On the other side you are seeing increasing relevance to customers, so even during recessions we continue growing.”

India’s outsourcing companies perform functions for local and overseas customers including call center management, software development and business consulting.

Analysts surveyed by India’s CNBC-TV18 had expected profit of 3 billion rupees on revenues of 32.6 billion rupees.

“Results are above expectations,” said Kotak Securities analyst Dipen Shah.

The 10.7 percent growth in constant currency terms in the IT services business was higher than growth reported by HCL’s larger peers, he said. But profit margins declined more than expected due to increased staff numbers.

HCL said margins shrank due to declines in the euro and British pound plus record hiring.

The company added 6,428 employees during the quarter, bringing its total workforce to 64,557 people.

Attrition at HCL’s information technology services division rose to 15.7 percent for the quarter, up from 13.9 percent the prior quarter. Executives said they planned to raise wages in July but declined to say by how much.

HCL plans to hire in India and overseas as it expands to non-English speaking markets such as China, Europe and Latin America.

“Job losses are becoming a very big concern,” Nayar said. “We believe it is important to hire locally rather than only hiring in India.”

Nayar said a strategy to chase growth in emerging areas has produced strong performance in health care, Latin America and Asia.

Growth at HCL was led by health care and retail — which grew near 20 percent from the prior quarter — followed by manufacturing and financial services, the company said.

Revenues from the United States, which accounts for 61.5 percent of HCL’s business, rose 11.3 percent from the prior quarter. Revenues from Asia Pacific were up 9.1 percent and Europe rose 4.2 percent growth.

Net debt fell to $36 million in June from $221 million a year earlier.

HCL said it signed deals with companies including the Singapore Exchange, Merck, Dr. Pepper Snapple Group, Sony Corp., Nokia and CISCO.

After spiking 6.2 percent on the news, the stock was up 2.7 percent at 383.0 rupees in midday trade on the Bombay Stock Exchange.