HCL Tech Q3 suggests things not as bad in IT as feared

Moneycontrol Bureau

HCL Technologies shares surged around 5% to Rs 503 in the first hour of trade, after the company reported third quarter numbers (July-June accounting year) in line with market expectations. The market's reaction to the numbers appears to be one of relief after sector bellwether Infosys Technologies' disappointed with its earnings guidance last week. 
The performance boosted sentiment for IT sector in general, with shares like TCS, Wipro and Tech Mahindra trading between 1-2% up. To its credit, HCL Tech managed to hold on its margins and report a modest increase in revenues despite pressure in its key business verticals (manufacturing and financial services) and it main market, North America, which accounts for 56.5% of its revenues. This is leading some market players to think that the stock's valuation gap with Infosys Technologies may narrow in the coming days.
"Infosys is trading around 15 times (on-year forward earnings) and HCL Tech is trading around 12 times. May be the gap could shrink in the coming days," Krishna Kumar Karwa of Emkay Share & Stockbrokers told CNBC-TV18. Highlights of the quarter
* Revenues at USD 1.048 bln (+14.6% year-on-year, +2.5% quarter-on-quarter)
* Net profit at USD 121 mln   (+17.1% y-o-y, +8.6% q-o-q)
* Earnings before interest, tax at USD 164.3 mln (+24.6% y-o-y, +1.5% q-o-q)
* EBIT margin at 15.7% (14.4% last year, 15.8% previous quarter)
* Won over USD 1.5 bn (excluding contract renewals) in multi-year deals across 14 customers this quarter.
* Revenues from US fell 1% q-o-q, Europe grew 5.5%, rest of the world grew      11.4%.
* Revenues from financial services down 2.9% q-o-q, manufacturing flat, healthcare, energy utilities up 8.3%, media-entertainment up 6.5%.
* Financial services accounted for 24% of revenues, manufacturing 29%
* IT services revenues at USD 998.5 mln (+15.5% y-o-y, +2.4% q-o-q)
* IT services EBIT at USD 164.1 mln, down from USD 165 mln in December quarter
* BPO revenues at USD 49.4 bln (flat y-o-y, +6.5% q-o-q)
* BPO business just about broke even at operating level
* Total headcount at 82,464 (gross addition 3303, net addition 419)