HCL warns of tepid Q1 revenue on currency, client issues

Software major HCL Tech came out with a revenue warning soon after market closing today, saying a client-specific issue as well as cross-currency headwinds will take a toll on this quarter.In a statement to the exchanges, the company said it would "consider reserving revenue up to USD 20 million this quarter" to resolve a client-specific issue. "Discussions are on with the customer and company is in process of disengagement," HCL said.Further, it said its dollar revenues could see an impact of 80 basis points thanks to the sharp depreciation of various currencies versus the US dollar."Forex fluctuation will have an impact on revenue growth in the September quarter. [As a result] revenue growth for September ending quarter is likely to be weak." Earnings declarations for the September quarter is likely to start in a week's time."It is definitely a negative but since it's because of currency, we will watch volume numbers," Angel Broking's Sarabjit Kaur-Nangra told CNBC-TV18's Nayantara Rai in an interview. "Probably the client-specific news is more worrying."Below is the transcript of the interview on CNBC-TV18.Nayantara: Big profit warning that is coming from HCL Tech. They have said things are not going well with the public services client. They have set aside USD 20 million. How are you reacting to this?A: Definitely it is a negative news because normally HCL Tech is one of the leading players in the industry but since it is because of currency, we will closely watch volume numbers. It is a one-quarter thing wherein currency is playing out but the bigger negative is the news where they are talking about client specific issue. Probably that is more worrying than the currency news because currency is something which keeps on fluctuating quarter-on-quarter (QoQ). So, I will be looking out for volume numbers more closely when the results come out.Reema: This USD 20 million provision that they will be making, where will it come in the profit and loss (P&L)? Will it be directly impacting the profits?A: I think it will be taken as an expense as per my reading as of now. So, I guess that will definitely reflect in terms of profitability.Reema: What was your own assessment of what the currency impact will be on the topline in the number?A: As of now we have not finalised our quarterly numbers with respect to currency but I guess volume numbers, we are looking at a robust number coming in. I think if HCL disappoints over there then probably they will be a cause for concern. Nayantara: If you have HCL Technologies coming out with a profit warning and saying currency headwinds is one of the issues would you expect other IT companies to also come out and say that because currency headwinds is something all the IT companies have to face with or do you think it is primarily because things have gone sour with one client? What I am trying to ask is are you expecting similar warnings from other IT companies?A: Yes because this is as I indicated earlier, it is more of a macro issue. It is not something company specific. The company specific issue is the client specific issue that they have pointed out. So, I guess definitely it is something which will bother industry also and in some extent because there is a sharp depreciation happened vis-à-vis dollar, that as a currency will impact but I guess the volume growth how it comes out that will be another factor to look out. Secondly, in terms of how every individual company is exposed vis-à-vis currency will also play a role as to which company will be impacted significantly and which were the companies which though will be impacted not so greatly. So, I guess in that category Infosys should be least impacted and others should be impacted to minimum to maximum amount.