It has to be said, fifth-largest India-based IT/BP services firm, HCL, appears to be on a bit of a growth roll, capping off a great year with a great quarter. HCL’s Q4 headline revenues (to 30th June) leapt 31% to $963m, representing 5.3% growth qoq. This is second only to TCS (see TCS delivers "very satisfying" first quarter), and comfortably ahead of Infosys (Margins down, growth to slow at Infosys) and especially so, Wipro (Difficult quarter for Wipro). This pushed HCL’s FY revenues up 31%, to $3.3b, trumping FY growth (to March) of its larger peers. Only Cognizant – reporting next week – grew faster (42% in 2010).
Margins are quite a different story, though. HCL’s Q4 EBIT margins at 15.5% were a tad better both qoq and yoy, but still lag peers’ substantially. FY margins, at 14.0%, were over 2 points down yoy. BPO is still a part of the problem, losing $21m in the year, but this is only part of the problem. What’s more, HCL does its salary hikes in the September quarter (peers usually do this in the June quarter), so the big margin hit is yet to come. Anyway, either management has not got quite such deft control of the margin ‘levers’ as peers – or they are trading growth for profit. Either way, not a sustainable model for the longer term. But investors like the story, as HCL’s stock is some 15% higher ytd, whereas peers are down!