hcl technologies ltd - q1fy12 result update

8/3/2019 HCL Technologies Ltd - Q1FY12 Result Update

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Wealth Research, Unicon Financial Intermediaries. Pvt Ltd.

Email: [email protected]

ONG TERM INVESTMENT CALL

BUY 19 October 2011

Company Report | Q1FY12 Result Update

Wage hikes impact margins, but top line remains strong

HCL Technologies Ltd. (HCLT) reported mixed results for the first

quarter of the year. The company revenue crossed the USD 1 bn mark for

the quarter for the first time. The quarterly revenue has doubled over the

last three years.

Volume Growth: HCLT reported revenue of INR 46.51 bn which was up

by 25% and 8.2% on a YoY and a QoQ basis respectively. EBITDA for the

quarter stood at INR 7.9 bn, up 32% from the same quarter in the

previous year. PAT posted for the quarter was INR 4.9 bn, up 50% YoY

but marginally down by -2.7% QoQ. HCLT saw volume growth of 5.1%

this quarter. Price realization increased 1.2% QoQ. Offshore revenue

stood at 41.7%, and Onsite revenue stood at 58.3%. Utilization excluding

trainees was at 74.1%. If we include trainees, utilization was at 70.1%.

HCLT added 3,474 employees (net) in this quarter, taking the total

employee base to 80,520.

New deals in the quarter: HCLT has seen 12 new wins for the quarter

with the US and Europe driving the growth. The quarter saw strong

growth across the service lines with Engineering and R&D Servicesgrowing by 8.6% and Customer Applications and Infrastructure Services

growing at 7.3% and 5.8% respectively. The Retail & CPG and the

Manufacturing verticals also showed good growth of 12% and 8.2%

respectively. In constant currency terms the BFSI segment grew by 2.1%

QoQ, whereas the Telecom segment contracted by 2% QoQ. The EBIT

margins saw a decline in this quarter, by 120 bps to 14.3% but have been

less than projected by the company.

Positive growth outlook: HCLT is confident of acquiring greater market

share in the quarters moving ahead and is well positioned to do this. TheIT services space has seen an increase in churn rates at 50% QoQ and with

new long term contracts of peer companies coming up for renewal in the

second quarter, HCLT is looking to capitalize using their operation

efficiency and better pricing model. Although there are global macro

economic concerns, HCLT did not witness any considerable slowdown in

demand over the last quarter and financial services continue to look

strong. The next quarter will be extremely important for the company as

it looks to win important deals in the quarter which will have a

significant impact on the financial year moving ahead. HCLT expects

strong revenue growth in orders in the October-December quarter as it

taps new markets in Japan and Europe and seeks to benefit from contract

renewals due in the U.S.

Industry IT / ITES

CMP (INR) 401Target (INR) 495

Upside / Downside (%) 23.4%

52 week High/Low (INR) 528/360

Market Cap (INR bn) 27.67

3M Avg. Daily Volumes 1339.69

P/E (FY12 E) 12.6x

Shareholding Pattern (%)

Promoters

65%FIIs

21%

DIIs

6%

Others

8%

1 – Year Stock Chart

60

70

80

90

100

110

120

130

O c t

N o v

D e c

J a n

F e b

M a r

A p r

M a y

J u n

J u l

A u g

S e p

O c t

HCL Nifty

Stock Performance (%)

1 Month 3 Months 1 Year

HCLT 14.1% -11.6% 2.0%

NIFTY 0.7% -8.3% -15.6%

(INR in mn)

Particulars Actual Estimates

Total Income 46,513 45,623

EBIDTA 7949 7,789

Reported PAT 4,968 5,247

* Source: Bloomberg, Unicon Research





Consolidated Financials(INR in mn)

Particulars Q1 FY12 Q1 FY11 Y-o-Y Q4 FY11 Q-o-Q

Revenues 46,513.0 37,081.0 25% 42,995.0 8%

Direct Costs 31,871.0 25,346.0 26% 29,061.0 10%

Gross Profits 14,642.0 11,735.0 25% 13,934.0 5%

Gross Profit Margin 31.5% 31.6% -17 bps 32.4% -93 bps

SG&A 6693.0 5701.0 17% 5992.0 12%

EBITDA 7949.0 6034.0 32% 7942.0 0%EBITDA (%) 17.1% 16.3% 82 bps 18.5% -138 bps

Depreciation 1,178.0 1,064.0 11% 1,121.0 5%

Amortisation 131.0 185.0 -29% 167.0 -22%

EBIT 6,640.0 4,785.0 39% 6,654.0 -0.2%

EBIT (%) 14.3% 12.9% 137 bps 15.5% -120 bps

Foreign Exchange Gains/(Loss) (179.0) (655.0) -73% 83.0 -316%

Other Income 238.0 5.0 4660% 71.0 235%

Share of Income/(loss) of minority shareholders 3.0 (2.0) -250% 2.0 50%

Tax Provision 1,728.0 824.0 110% 1,699.0 2%

Tax Rate (%) 24.5% 15.1% 935 bps 25.6% -109 bpsPAT 4,968.00 3,313.00 50% 5,107.00 -3%

PAT Margin 10.7% 8.9% 175 bps 11.9% -120 bps

Diluted EPS (INR) 6.8 4.8 42% 7.0 -2.9%Source: Company, Unicon Research (Average Exchange Rate USD 1 = INR 46.41)

Outlook & Valuation:

The macro economic environment will have a significant impact on the future revenue of IT services companies in the

medium term. HCLT has adopted a fairly aggressive strategy in increasing its market share and thus has been able to

show greater volume growth as compared to its peer. This growth momentum may moderate to a certain extent moving

forward but the company will still show strong revenues due to increased market share. They are in the best position to

benefit from the depreciation of the INR v/s USD due to their low forex hedged position (~ USD 390 mn) as compared to

their peers. At CMP of INR 401, the stock is trading at P/E of 12.6x FY12E earnings which is at a discount as compared to

its peers. We believe the stock has a potential upside of 23.4% and hence recommend a BUY on the stock and maintain our

price target of INR 495.





Unicon Investment Ranking Methodology

Rating Buy Accumulate Hold Reduce Sell

Return Range >= 20% 10% to 20% -10% to 10% -10% to -20% <= -20%

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hcl technologies ltd - q1fy12 result update

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