The country’s third-largest software exporter grew its revenue by 0.9% sequentially in the June quarter to $2,720 million compared with the expectation of a 2.2% growth. It was also the slowest growth among peers, which delivered around 3-12% growth. The company’s performance was marred by slow offtake in the European region due to transition of projects. Revenue from Europe fell by 3.9% sequentially during the quarter. According to company management, it was more of a quarterly blip than a trend and it expects the growth to resume in the coming quarters.
Operating margin fell nearly 80 basis points sequentially to 19.6%, which was around 50 basis points more than what analysts had anticipated following higher selling and administrative expenses.
Despite the weak first quarter of the current fiscal, the company has retained its guidance of a double-digit revenue growth with a margin band of 19-21% for the full year. The management’s confidence can be attributed to the momentum in the deal flow. It bagged deals with a total contract value of $1,664 million during the June quarter. In addition, the sequential net employee addition of 7,522 was on top of a record addition of 9,295 employees in the previous quarter. This reflects a sustained demand visibility.
On the flip side, attrition rate increased sequentially by 190 basis points to 11.8%. The trend was similar to what its peers have reported, hinting at rising competition to recruit talent, which may weigh on the profitability in the next few quarters.
Like HCL Tech, its peers have also shown a sustained deal flow and employee addition for the June quarter. Therefore, its stock performance not only depends upon how quickly it resumes on the growth track but also on whether it can demonstrate faster growth than peers. Until then investors may prefer to wait before taking fresh positions in the stock.
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