India’s HCL Technologies Profit Fall Miserably due to Forex Loss

HCL Technologies profit down by half on forex loss

MUMBAI, India — Indian software services firm HCL Technologies Ltd. said quarterly profits plunged by nearly half as the company battled foreign exchange losses, lower prices, and declining demand from financial services and telecom customers.The company said Wednesday that it earned $43.0 million in net income during the quarter ended March 31, versus $85.4 million during the same period a year earlier. Excluding foreign exchange losses, the decline in profits was 2.4 percent.

Revenue rose 18.2 percent, to $564.4 million.

The company said it won large deals worth $1.5 billion over the last nine months — twice as much as it did during the same period last year — sealing 11 new contracts with customers including Nasdaq, Shoprite and Xerox.

HCL executives said six of those deals were thanks to its December acquisition of Britain’s Axon Group Plc for pounds 440 million ($643.8), the largest overseas acquisition by an Indian outsourcing company.

Faced with declining demand and harsh pricing pressure, the company has also focused on improving efficiency.

“Lean, mean, hungry is the best way to live,” chief executive Vineet Nayar told reporters.

Unlike some of its peers, HCL is not pulling work back to India from sites in the U.S. and Europe to trim costs, he said.

In part that may be because HCL already sources most of its work in India. HCL did 71.6 percent of its software services work in India last quarter, down from 75 percent in the same quarter last year.

That’s far higher than rival Tata Consultancy Services, which boosted India-based work to 45 percent last quarter.

Hourly billing rates are about three times lower in India than they are in Europe and the U.S., analysts say.

Nayar, who just returned from a trip to the U.S., said customers are sensitive about being seen as exporting jobs to India — known as offshoring in industry jargon.

“If you demonstrate to customers that you are creating new jobs you are able to get more business,” he said.

“There is a large market that will not go for vendors going for an aggressive offshoring strategy.”

HCL says it has taken on 2,800 employees in the U.S. and U.K. in the last six months, 90 percent of them local hires.

The company would not reveal the number of new hires versus the number of existing Axon employees added to the payroll. Axon had about 2,000 employees when HCL agreed to take it over.

HCL says it is hiring at a 500-seat center opened in Raleigh, North Carolina last year.

Despite the company’s “zero layoff policy,” muted recruitment meant that the overall global headcount fell by 992, to 54,026, from December to March, as the company trimmed back-office jobs.

A 212.5 percent sequential increase in business from energy, utilities and public sector clients, as well as 19.3 percent growth in life sciences helped counter declining revenues from financial services and telecom customers.

Asia Pacific business has been falling, while business from the U.S. rose and now accounts for 61 percent of total revenues, up from 55.3 percent a year ago.

Nayar said HCL would review its contract with its auditors, Price Waterhouse, in June.

Two Price Waterhouse employees are facing criminal charges relating to the $1 billion accounting fraud at Satyam Computer Services.

Price Waterhouse has suspended both and maintains they too were victims of the elaborate fraud.

In the meantime, HCL has appointed a second auditor, KPMG, to double check key elements of Price Waterhouse’s audits.

HCL’s stock fell 8.8 percent in midafternoon trading on the Bombay Stock Exchange, to 126.25 rupees a share, underperforming the Sensex index, which was down 0.77 percent.