Result Analysis-HCL Tech-23-07-2020

Result-Analysis-Image

HCL Tech 1QFY21 Result 1QFY21 4QFY20 1QFY21 YoY (%) QoQ(%)
Revenue 17841 18590 16425 8.6% -4.0%
Operating Expenditure 13275 13870 13025 1.9% -4.3%
Cost of revenues 10728 11151 10920 -1.8% -3.8%
SG&A expenses 2547 2719 2105 21.0% -6.3%
EBITDA 4566 4720 3400 34.3% -3.3%
Depreciation 906 839 595 52.3% 8.0%
EBIT 3660 3881 2805 30.5% -5.7%
Other Income 205 -13 128 60.2%
Profit before Tax 3865 3868 2933 31.8% -0.1%
Total Tax 929 707 705 31.8% 31.4%
Net Profit 2936 3161 2228 31.8% -7.1%

 

Result Highlight:

  • 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.

View:

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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Elite Wealth Advisors Limited does/does not do business with companies covered in its research reports. Investors should be aware that the Elite Wealth Advisors Limited may/may not have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as read more


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