HCL Technologies (HCLTECH) Q4 02/03 earnings summary

Executive summary

• FY03 standalone software-services revenue rose 21% to Rs 8,717 million, driven by higher volumes; price realizations declined.

• Competitive pricing, talent-retention costs, capacity expansion and lower other income weighed on margins and profit; consolidated net income fell under both Indian and US GAAP.

• Rebalancing the service portfolio reduced reliance on product engineering, while non-US revenue grew faster than America revenue.

Financial highlights

• Consolidated US GAAP FY03 revenue was Rs 18,009 million, net revenue Rs 17,992 million and net income Rs 3,053 million, versus Rs 15,888 million, Rs 15,892 million and Rs 3,652 million in FY02.

• Consolidated Indian GAAP FY03 sales were Rs 21,435 million and net profit Rs 2,479 million, versus Rs 16,099 million and Rs 3,352 million in FY02.

• Standalone FY03 service revenue was Rs 8,717 million versus Rs 7,234 million; profit after tax was Rs 3,093 million in the results table versus Rs 4,020 million in FY02.

• Standalone audited FY03 profit after tax was Rs 312.47 crore versus Rs 401.95 crore; basic/diluted EPS was Rs 10.83/Rs 10.62 versus Rs 14.05/Rs 13.71.

• Consolidated Indian GAAP basic/diluted EPS was Rs 8.60/Rs 8.43 versus Rs 11.71/Rs 11.43; consolidated US GAAP operating income was Rs 2,830 million versus Rs 2,878 million.

Outlook and guidance

• Management expected industry pricing to stabilize as outsourcing demand picked up, with profitability metrics expected to improve; cost-reduction measures were being implemented.

• All development centres were ISO 9001-certified, most had CMM Level 4 or 5 accreditation, and an organization-wide CMMI Level 5 assessment was planned by mid-2004.

• Offshore delivery represented 81% of revenue, supporting cost-effective delivery as multinationals shifted IT budgets toward lower-cost vendors.