>HCL TECHNOLOGIES (CITI)

Hold: Good Q4 but Another Decline in IT Services Headcount

■ ~8% sequential revenue growth led by infra services — HCL Tech reported strong Q4FY09 results – revenues increased ~7.6% sequentially with infrastructure services leading the way with 25.5% growth sequentially. Margin improvement of ~80bps qoq and lower than expected forex losses resulted in net profits increasing ~50% qoq to Rs. 3.1b.

■ Margins improved ~82 bps qoq — EBITDA margins improved ~80bps sequentially. IT Services margins improved by ~180bps sequentially due to better realizations and utilization rates. BPO and Infrastructure services margins declined sequentially.

■ Decent growth across segments — HCL Tech reported decent growth across segments – software services revenue growth was 4.5%, which was meaningfully better than peers. Infrastructure services did very well with ~25% sequential growth while BPO did well with ~4% growth qoq.

■ IT Services headcount declines again — IT Services headcount declined yet again – delivery headcount declined by ~500 employees compared to a decline of ~300 reduction in the previous quarter. Management comments on growth outlook for software services remain a key to focus on.

■ More details post the earnings call — The strong set of results will likely result in EPS upgrades across the street. The key issues to focus in the earnings call are (a) Demand outlook for IT services given the headcount reduction and (b) Sustainability of margins. The earnings call is at 1730 hrs India time.

To see full report: HCL TECHNOLOGIES