|Result Analysis: HCL Tech Ltd.||Result Update Q3FY22|
|Particulars (In ₹. Cr)||Q3FY22||Q2FY22||Q3FY21||QoQ %||YoY%|
|Revenue From Operation||22331.00||20655.00||19302.00||8.11%||15.69%|
|Employee Cost as % of Revenue||52.85||53.34||48.94||-0.91%||7.98%|
|Basic EPS (in Rs. )||12.69||12.01||14.63||5.66%||-13.26%|
|Segment Revenue||Q3FY22||Q2FY22||Q3FY21||QoQ %||YoY%|
|IT aand Business Services||15721.02||14995.53||13627.21||4.84%||15.36%|
|Engineering and R&D Services||3461.31||3242.84||3069.02||6.74%||12.78%|
|Product and Platform||3148.67||2416.64||2605.77||30.29%||20.83%|
|Geographical Segment||Q3FY22||Q2FY22||Q3FY21||QoQ %||YoY%|
|Rest of the world||1786.48||1838.30||2277.64||-2.82%||-21.56%|
HCL Tech Consolidated Revenue rose 11% QoQ and 15.69% YoY to ₹ 22331 crore – inline with the estimate. Other income rose 6.25% QoQ to ₹255 Crore.
EBITDA Margin contracted to 47% from 28.2% same quarter last year due to wage hike.
Net profit decline 13.65% YoY to ₹3442 crore for the December quarter compared with ₹ 3982 crore in the same quarter last Reported strong Cash flow of ₹ 584.3 Cr in Q3.
Attrition rate continues to be very high at 19.3%.
All Verticals Grow 10%+ YoY; Product and Platform saw the highest growth of 20.83%.
All major markets showed strong growth, with growth led by America (+17.38%). Europe (+42.21%), India saw degrowth (-21.56%).
Strong Booking performance: TCV of New Deal wins at US$ 2,135 mn registering 64% YoY growth. Services TCV at US$ 1,968 mn (63% YoY) enabled by 8 net new large Services deal wins; Products TCV at US$ 167 mn (70% YoY) enabled by 8 net new large Product deal wins; Significant number of small deals.
HCL is acquiring 100% stake in Starschema, a limited liability company incorporated in Hungary for total cash consideration of US$ 42.5 mn. With this acquisition, HCL would enhance its capabilities and solutions in Data Engineering which will accelerate the growth of Mode 2 services in Digital Engineering, Near-shore Eastern European presence and ability to scale. The transaction is expected to be closed by March 2022.
HCL announced the acquisition of 51% equity stake in the German IT consulting company, Gesellschaft für Banksysteme GmbH (gbs), along with apoBank, who would hold the balance 49% of equity. The strategic partnership would drive digital transformation and innovation for German financial services sector. HCL has paid Euro 99,000 as the purchase consideration for its 51% stake. The transaction has been completed with effect from January 5th, 2022
The company has declared a dividend of ₹ 10 /- per share for Q3
C Vijayakumar, Chief Executive Officer & Managing Director, the company said “We have delivered all round stellar performance this quarter with a revenue growth of 7.6% in constant currency QoQ, the highest recorded in the last 46 quarters. Our Products & Platforms segment led the growth with 24.5% followed by Engineering and R&D Services with 8.3% and IT & Business Services with 4.7%, all in QoQ cc. Our future looks bright as we had a very strong net new booking of $ 2.1B, a 64% YoY increase. We also added more than 10,000 to our employee strength this quarter. I believe we continue to be in a vantage position to address sustained demand momentum as our investments on strategic priorities like digital, cloud & engineering capabilities and our talent development plans are showing strong returns.”,
This was clearly a quarter of record growth. Revenue achievement was at $ 2,977 Mn, up 7.6% QoQ & 15.0% YoY in constant currency. Profitability was maintained at EBITDA of 24.2% and EBIT of 19.1% (both Ind AS). Net Income Margin for the quarter was 15.4%. Free Cash Flow (FCF) increased 33.7% QoQ at $ 521 Mn, 114% of Net Income. LTM FCF is at 102% of Net Income. We closed the quarter with Gross Cash at $ 2.7 Bn and Net Cash at $ 2.1 Bn, despite higher dividend payout, purchase of shares by the RSU Trust and acquisition of balance shareholding in Actian during the quarter.”, said Prateek Aggarwal, Chief Financial Officer, HCL Technologies Ltd.
Guidance: Revenue expected to grow in double digits in constant currency for FY’22. EBIT margin expected to be between 19% and 21% for FY’22.
The management reiterated double digit revenue guidance for FY22 and 19- 21% EBIT margin for FY22. The company indicated that 65 bps margin impact for the quarter (due to seasonal leaves) would not be recurring in nature but other factors may continue to impact for few quarters. Due to this, HCLT expects EBIT margins to be at the lower end of the guided range
The company continued to hire freshers to cater to the increasing demand. It added 5,000 freshers in Q3 over and above 5,500 freshers in Q2 and 3,500 in Q1. The company has guided for 20,000 fresher hiring for FY22E.
HCL Tech Q3FY22 result was inline on all front, Revenue grew 15.69% and Profit degrowth came in at -13.56% on YoY basis , EBIT margin decline was 300 basis point YoY basis but improved QoQ basis despite multiple headwind of wage revision The Deal value of the company is broad based across markets and verticals with $2135 million in this quarter. HCL Tech services attrition rate still continues to be high but lower than the industry.As demand environment continues to be strong with deal pipeline increasing every quarter, HCL tech Revenue expected to grow in double digits in constant currency for FY’22. EBIT margin expected to be between 19% and 21% for FY’22.. At the CMP of ₹1337, HCL Tech is trading at PE multiple of 30x. Valuing the company at 32x FY23E EPS, we recommend buy on Infosys at CMP of for the Target Price of ₹ 1520.
Disclosure in pursuance of Section 19 of SEBI (RA) Regulation 2014
Elite Wealth Limited does/does not do business with companies covered in its research reports. Investors should be aware that the Elite Wealth Limited may/may not have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only information in making their investment decision and must exercise their own judgment before making any investment decision.
For analyst certification and other important disclosures, see the Disclosure Appendix, or go to www.elitewealth.in. Analysts employed by Elite Wealth Limited are registered/qualified as research analysts with SEBI in India.( SEBI Registration No.: INH100002300)
Analyst Certification (For Reports)
Israil Khan, Elite Wealth Limited, email@example.com
The analyst(s) certify that all of the views expressed in this report accurately reflect my/our personal views about the subject company or companies and its or their securities. I/We also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Elite Wealth Limited.
As to each individual report referenced herein, the primary research analyst(s) named within the report individually certify, with respect to each security or issuer that the analyst covered in the report, that:
(1) all of the views expressed in the report accurately reflect his or her personal views about any and all of the subject securities or issuers; and
(2) no part of any of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in the report.
For individual analyst certifications, please refer to the disclosure section at the end of the attached individual notes.
This note may include excerpts from previously published research. For access to the full reports, including analyst certification and important disclosures, investment thesis, valuation methodology, and risks to rating and price targets, please visit www.elitewealth.in.
Important disclosures, including price charts, are available and all Elite Wealth Limited covered companies by visiting https://www.elitewealth.in, or emailing firstname.lastname@example.org with your request. Elite Wealth Limited may screen companies based on Strategy, Technical, and Quantitative Research. For important disclosures for these companies, please e-mail email@example.com.
Options related research:
If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk disclosure documents. For a copy of the risk disclosure documents, please contact your Broker’s Representative or visit the OCC’s website at https://www.elitewealth.in
All research reports made available to clients are simultaneously available on our client websites. Not all research content is redistributed, e-mailed or made available to third-party aggregators. For all research reports available on a particular stock, please contact your respective broker’s sales person.
Ownership and material conflicts of interest Disclosure
Elite Wealth Limited policy prohibits its analysts, professionals reporting to analysts from owning securities of any company in the analyst’s area of coverage. Analyst compensation: Analysts are salary based permanent employees of Elite Wealth Limited. Analyst as officer or director: Elite Wealth Limited policy prohibits its analysts, persons reporting to analysts from serving as an officer, director, board member or employee of any company in the analyst’s area of coverage.
Country Specific Disclosures
India – For private circulation only, not for sale.
Legal Entities Disclosures
Mr. Ravinder Parkash Seth is the Managing Director of Elite Wealth Ltd (EWL, henceforth), having its registered office at Casa Picasso, Golf Course Extension, Near Rajesh Pilot Chowk, Radha Swami, Sector-61, Gurgaon-122001 Haryana, is a SEBI registered Research Analyst and is regulated by Securities and Exchange Board of India. Telephone:011-43035555, Facsimile: 011-22795783 and Website: www.elitewealth.in
EWL discloses all material information about itself including its business activity, disciplinary history, the terms and conditions on which it offers research report, details of associates and such other information as is necessary to take an investment decision, including the following:
a) EWL or his associate or his relative has no financial interest in the subject company and the nature of such financial interest;
(b) EWL or its associates or relatives, have no actual/beneficial ownership of one per cent. or more in the securities of the subject company, at the end of the month immediately preceding the date of publication of the research report or date of the public appearance;
(c) EWL or its associate or his relative, has no other material conflict of interest at the time of publication of the research report or at the time of public appearance;
(a) EWL or its associates have not received any compensation from the subject company in the past twelve months;
(b) EWL or its associates have not managed or co-managed public offering of securities for the subject company in the past twelve months;
(c) EWL or its associates have not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months;
(d) EWL or its associates have not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months;
(e) EWL or its associates have not received any compensation or other benefits from the Subject Company or third party in connection with the research report.
3 In respect of Public Appearances
(a) EWL or its associates have not received any compensation from the subject company in the past twelve months;
(b) The subject company is not now or never a client during twelve months preceding the date of distribution of the research report and the types of services provided by EWL