UPDATE 2-India's HCL Tech profit jumps; eyes turn to rival Wipro

Thu Jan 17, 2013 2:06pm IST

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* Dec-qtr profit 9.65 bln rupees versus street view of 8.26 bln

* HCL won six large contracts during the quarter

* Financial services clients spent more, boosting revenue

* Wipro forecast to post 8 pct earnings growth Friday

By Harichandan Arakali

BANGALORE, Jan 17 (Reuters) - India's No.4 software services provider HCL Technologies Ltd joined Infosys and Tata Consultancy in beating profit estimates, sending its shares up as much as 7 percent and adding pressure on Wipro to deliver strong results on Friday.

Investors are betting that a good showing by the top companies in India's $100 billion-a-year outsourcing industry is an early sign of a broader pickup in IT spending. Reflecting that optimism, the country's IT services subindex has surged more than 13 percent in almost a week.

HCL reported a 68.4 percent jump in net profit for the three months ended December to 9.65 billion rupees ($176 million) from a year earlier. Analysts were expecting profit to rise to 8.26 billion rupees, according to Thomson Reuters data.

The company, based outside Delhi, also posted a 3 percent gain in the volume of IT services it provides compared with the previous quarter even as it cut headcount while Infosys Ltd and Tata Consultancy Services Ltd added staff.

An increase in work being moved offshore also helped HCL grow operating margins faster than larger rival Tata Consultancy compared with the previous quarter, while margins at Infosys Ltd shrank.

"They've really exercised cost control, they've managed that exceedingly well by keeping a strong control on recruitment. Their infrastructure services business has seen margin expansion and that's a good sign as well," said Bhavin Shah, CEO of Equirus Securities.

Infrastructure refers to managing large banks of computer servers, networks and the software that powers them.

HIGHER REVENUE GUIDANCE

Shares of IT services providers have jumped since industry No.2 Infosys topped earnings forecasts and unexpectedly raised its revenue guidance, spurring hopes for a turnaround for the battered company and an uptick in demand for the broader sector.

HCL said revenue both from infrastructure and financial services grew 10 percent from the previous quarter. That augurs well for outsourcing spending as financial clients are among the largest spenders globally on technology.

Wipro, the No.3 player, is expected to post an 8 percent rise in earnings for the December quarter, according to the latest Thomson Reuters data.

Shares in Wipro rose more than 3 percent to 433 rupees on Thursday, helped by UBS' upgrade to 'buy' from 'sell' and an increase in its price target to 510 rupees from 340 rupees on expectation that revenue momentum picked up in the December quarter and client spending outlook is improving.

HCL, whose customers include Freescale Semiconductor and Finmeccanica, won six large contracts during the quarter. Sales rose 19.6 percent to 62.74 billion rupees, ahead of analysts' average estimate of 62.2 billion rupees.

Economic uncertainty had led to concerns that clients in the United States and Europe, the IT industry's biggest markets, would continue to hold back spending.

Research firm Gartner now expects spending on IT services to grow 5.2 percent to $927 billion in 2013, compared with 1.8 percent growth in 2012.

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