HCL eyes 12-14% revenue growth in FY17 on back of strong orders

After three quarters of subdued performance, HCL Technologies reported a stellar first quarter performance with a 6.3 percent rise in net profit to Rs 2,047 crore while the rupee revenue grew 6 percent to Rs 11,336 crore. The company's operating margins (EBIT) rose to 5 percent to Rs 2,333 crore in Q1. Increased automation and offshoring, usually associated with large deals, helped margins in the last quarter, said Anil Chanana, CFO of HCL Tech. Anant Gupta, the company’s CEO, speaking to CNBC-TV18, said that organic growth in the first quarter was higher on back of strong foundation in different sectors. Nearly 10 percent growth in infrastructure division came from organic business, he said. Strong orderbook gives management the confidence of clocking in 12-14 percent revenue growth in FY17, Gupta said. Below is the verbatim transcript of Anant Gupta, Anil Chanana and C Vijay Kumar's interview to Reema Tendulkar on CNBC-TV18.Q: How is your performance for this quarter?Gupta: First of all if you look at our performance 6.5 sequential growth or even if you look at on a last 12 month basis 10.7 percent really is based on our strong foundation in different areas, so if you look at application services grew 2.3 percent in this quarter, of course, infrastructure grow by phenomenal 17 percent plus this quarter. I think Volvo did have an impact, but overall the business grew by about 10 percent from organic business.Q: Organic revenues were up 10 percent on year-on-year (YoY), on the whole if you could give us a break up organic and inorganic?Gupta: Absolutely. We have to compute that, but I think largely the story was about an overall performance. The organic portfolio in different lines of business was very strong. If you look at even at infrastructure services with a 17 percent growth, 10 percent of that came from organic so you can compute the balance.Q: Just to revisit the point again, when you acquired Volvo it had annual revenues of USD 190 million, it was operational, integrated effective April 1, so on a quarterly basis it can potentially contribute USD 47.5 million and not even assuming any increase in revenues. Would the number be more or less than that?Chanana: The number has been lower than that, because this business will have projects.Q: With respect to the guidance of 12-14 percent if you could then tell us how much you are expecting in terms of organic and how much will come inorganically?Gupta: I don’t think we are breaking it up between different lines. I think the key thing is that what we are looking at is our (a) our order book is very strong. Fundamentally, the order book is very strong and that is giving the confidence in whatever the number is.I think secondly it is more important is the market has a little bit of volatility in what the outlook could be, since you are trying to confuse that with TCV wins and TCV computation, we kind of took a view and a decision that it is better to be little bit more prescriptive on what the outlook will be.Q: Great performance in the margins 20.6 percent versus 20.8 percent. Can you tell us how you manage to manage the margin, what was the impact on account of visa, what was the hit because of Volvo, what were the levers that helped you maintain your margins?Chanana: I think on the whole it has been an increase adoption of DryICE automation platform number one. Number two has been the increase off shoring. These two factors in general have helped us and this is typically associated with any large deal which in the initial phases will have a lower margin and as the execution takes place over a period of one and a half to 2 years its comeback to the company level margins.We didn’t have any significant or meaningful visa impact, because we as a company are not dependent upon visas. If you look at visa, less than 50 percent of our people in the US will be visa dependent.Q: Any hit on account of Volvo because that is expected to be margin dilutive?Chanana: So it bakes in that heat in the sense that it has not been negative, it has been positive.Q: So you haven’t loss on your margins on account of Volvo?Chanana: We did lose on the margins, because the margin there is lower than the margin overall company margin.Q: So how much?Chanana: We can’t be deal specific in terms of margins because it is a combination of all the businesses we run. So, however, it will take the same trajectory as any other deal will take.Q: If I look at the service lines, growth once again for the company has been driven purely by infrastructure management services, 16.5 percent in constant currency, application growth is quite middling at 1.9 percent, business services is a small component only 5 percent, but it is a negative growth. What is going to be the growth focussed for the company from here on?Vijay Kumar: First just let me clarify on the business services it was primarily due to one client who decided to insource due to regulatory reasons, that’s one client has impacted as in business services, its impacted in financial services as well as North America numbers. 1.9 percent quarter-on-quarter (QoQ) growth in application services is again if you look at the last few quarters this is the best.