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Analysts laud HCL Technologies’ results, but stock down

Despite positive comments from the experts on HCL Technology’s June quarter results, the street seems to have given a thumbs down.

HCLT had announced an impressive 13% quarter on quarter jump in its pretax, pre-Interest profits, but sales growth was slower than usual at 5.3%.

The stock was down 1.83% at Rs 505 on the BSE, in a pessimistic market which was down overall by around 0.6%.

Analysts, who tend to focus on profitability more than topline growth, however, saw the results as positive.

“HCL Tech topped better than expected margins and reported revenue growth of 5.3% QoQ is USD terms for Q4FY11. We expect stock to react positively due to strong margin performance. We reiterate our BUY,” stock broking firm Prabhudas Lilladher said.

Dipen Shah, Senior Vice President at Kotak Securities too echoed the views.

“HCLT’s results were in line with our estimates. The 120bps (1.2 percentage point) improvement in EBIDTA margins was positive. The improving macro scene and sustainability of revenues growth and improving margins, makes us positive on HCLT,” he said.

HCLT’s growth was slightly on the slow side compared to its own performance in the previous four quarters when it had grown at an average of 6.9%.

Arup Roy, Principal Research Analyst at Gartner, said he saw no surprise in the numbers.

“It shows steady state of affairs with annual revenue growth of 31.1% on yoy basis (in USD) which shows more or less the same growth story as it was last financial year for HCL,” he said.

He, however, warned that the different IT service providers are starting to specialize more and more and that the top tier ones are starting to move away from the others in the market. In such circumstances, unless the specialization and positioning strategy is in place, companies may find themselves at sea sooner than later.

“Sharp focus and attention is now an essential element to capitalize on especially in the ‘new white space’ that is getting created in the various tiers of vendors that are playing the market place,” he pointed out.

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