Apr 18, 2013, 09.03 AM | Source: CNBC-TV18

See medium-term margins in 18-19% range: HCL Tech

HCL Technologies' margins in the medium-term will be in the 18-19 percent range, CFO Anil Chanana said on Wednesday.

HCL Technologies ' margins in the medium-term will be in the 18-19 percent range, CFO Anil Chanana said on Wednesday.

The company surprised the street once again, with a better-than-expected third quarter net profit of Rs 1,040 crore , up 73 percent year-on-year, while revenue rose 23 percent to Rs 6,425 crore.

Analysts on average had expected HCL Tech to report a net profit of Rs 931 crore on sales of Rs 6,413 crore.

Its EBIT margin came in at 19.9 percent (15.7 percent in Q3, 2012), while EBITDA margin was at 22.4 percent (18.4 percent a year ago).

HCL Tech will invest those gains in the rebid market, where market opportunity is expected to remain strong, at least till the end of calendar 2014.

"We continue to see great wins over there and therefore given that the market momentum is there, we will continue to aggressively play there," Anant Gupta, CEO, told CNBC-TV18.

Below is the verbatim transcript of their interview on CNBC-TV18

Q: Once again the company has surprised the street positively with its margins. It has been six straight consecutive quarters of margin improvement. You earlier said that EBIT margins will be maintained at 18-19 percent, but this quarter you have managed to inch towards 20 percent. Is there a case for margins to reset higher, closer to 20 percent?

Chanana: It has been a consistent margin story so this is a sixth straight quarter of margin expansion and net income expansion. We gave guidance to some of our investors who asked what the company is targeting as a medium-term range of margins. So, that range continues to be between 18-19 percent. We are focused on investing in our business so it could vary from quarter to quarter.

Q: In the last 12 months, the company has managed to grow dollar revenues by 15 percent. Will FY14 growth rate be faster?

Gupta: It is important to understand from where we are getting this growth. We have a broad base portfolio and are not overtly dependent on a specific business mix which is discretionary, non-discretionary, specific verticals or geographies. What has been growing well for us is the entire uptrend in the market, which is skewed towards non-discretionary spend.

If you look at that non-discretionary spend, the tax and prices index (TPI) data or the information services group (ISG) data, calendar year ’13-14-15 continue to be a very large portfolio with respect to rebid and restructured the deals and that has been an area where HCL had invested earlier. We continue to see great wins over there and therefore, given the market momentum is there, we will continue to aggressively play in there.

So, whatever margin upside we are getting from the operations, we are deploying it back into investments in these specific areas. This is because we see that this is a window of opportunity for us to acquire and put our foot into the door in terms of marquee customers. Therefore, expand that with higher value services when the time is right. We will continue to invest into the market more aggressively than earlier because the market is pretty much there.

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