|HCL Tech 1QFY21 Result||1QFY21||4QFY20||1QFY21||YoY (%)||QoQ(%)|
|Cost of revenues||10728||11151||10920||-1.8%||-3.8%|
|Profit before Tax||3865||3868||2933||31.8%||-0.1%|
- HCL Tech dollar revenue decline of 7.4% QoQ was broadly in line and stemmed partly from off shoring of large deals and supply constraints, besides the Covid-led demand slowdown.
- HCLT won 11 net new transformational deals in Q1 across the telecom, financial services, manufacturing, life sciences and healthcare verticals.
- The pandemic-led demand slowdown has stabilized and management believes Q1 was the trough. Cyber-security, cloud and ecommerce are gaining momentum.
- HCLT has guided for a 2.3-0.8% YoY CC revenue decline and operating margin in the range 19.5-20.5% for FY21.
- The deal pipeline swelled 40% QoQ, contributed by wins in life sciences, technology and financial services.
- HCL Tech sees continued vendor consolidation momentum as opportunity for gaining market share.
Management commentary Highlight:
- Bigfix and App scan saw their footprint increase significantly in Q1FY21. Performance of IBM products has been stable over the last three quarters.
- Covid-19 had a limited impact because of strong customer relationships and a diversified software business mix.
- Last three quarters run-rate from the IBM product suite has reached US$ 600 million, inching closer to the target of US$ 625 million.
- HCL Tech sees an opportunity for deal wins arising out of vendor consolidation.
- ER&D services segment saw a significant decline of 9% QoQ, followed by IT and business services which dropped 7.9%.
- Asset-heavy segments within the ER&D business, i.e. airline, automotive and industry equipment manufacturing clients were hit by the lockdown.
- The asset-light segment, i.e. semiconductor and telecom clients, saw limited impact from Covid-19. Management expects recovery from Q2FY21 onwards in the segment.
- HCL Tech has signed an agreement with banking software solutions provider Temenos for marketing and supporting the latter’s multi-experience development platform (MXDP) to non-BFSI clients.
- The agreement is exclusive for seven years and HCL Tech will be paying US$ 80 million to Temenos over the agreement period. The partnership complements its Mode-3 pivot strategy.
Q1FY21 performance is better than street estimate The Company managed to bag 11 large transformation deals in a difficult quarter, given strong FY21 margin guidance (19.5-20.5%). The board announced dividend of Rs 2 per share, Q1FY21 being the 70th consecutive quarter of dividend payout ,growing software business which forms 16.2% of revenue and is relatively immune to Covid-led volatility. its IMS heritage which offers unique positioning to leverage the cloud migration opportunity accelerated by the pandemic. We will see positive movement in the stock in coming quarter.
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