An HCL Tech on a roll likely to top its peers next year, too

HCL Technologies, the fourth largest IT exporter, closed FY17 on an upbeat note. Its dollar-denominated revenue grew at the fastest rate of 4.1%, sequentially in the fourth quarter, among the top peers including Tata Consultancy Services (TCS), Infosys, and Wipro. At 11.9%, the growth for the full year FY17 was also the fastest for HCL Tech. The momentum is expected to continue given the company’s guidance of 9.9-11.9% revenue growth for FY18 at the currency rates on March 31. But, the quarterly trend during the fiscal may show volatility .

The trend in incremental annual revenue among the top Indian IT companies reflects the faster pace at which HCL Tech is clocking revenue.The company reported $739.5 million of additional or incremental revenue in FY17 over FY16. Its share of incremental revenue among the top four firms increased to 26.1% from 16.2% a year ago. TCS and Infosys reported a drop in their respective shares of incremental revenues while Wipro showed a marginal jump.

The company’s CFO Anil Chanana told ET that its client partner programme is delivering results as the company is gaining more business from some of its existing clients. The revenue from half of its top 20 clients grew at a faster clip than the total revenue growth of the company in FY17.

Apart from optimistic revenue guidance, HCL has retained its margins at the last year’s 19.5-20.5% despite 2.3% appreciation in rupee against the US dollar during the period. This shows its ability to shield profitability against moderate currency fluctuations.

HCL is also keen on reducing dependence of its revenue model on the extent of employee addition, known as non-linearity . “The proportion of non-linear revenue has increased to 61.8% from 56.8% in the previous year,” said Chanana. As a result, it clocked the highest per employee revenue of $60,143 in FY17 among peers.It was about $48,928 in FY12.

The management believes that it is relatively shielded from the visa policy changes in the US, its biggest market contributing over 62% to total revenue. This is because 55% of its US workforce is hired locally, which means its visa dependency is less than half for the American market. It has also been investing in expanding capacity in the US.

HCL Tech’s stock has gained 18% over the past 12 months compared with a drop in stocks of TCS, Infosys and Wipro. The HCL stock is expected to outperform peers in the coming quarters considering the improved revenue visibility .