Expanding hiring of freshers based on demand – HCL Tech

Update on Indian Equity Markets:

Markets continued their upward momentum on Tuesday as Nifty closed the day 174 points higher at 14,659. Within the index, HINDALCO (5.1%), TATASTEEL (3.9%) and DIVISLAB (3.5%) were the highest gainers while HDFCLIFE (-3.6%), SBILIFE (-1.4%) and MARUTI (-0.9%) were few of the losers. All the sectoral indices closed in green with METAL (2.8%), PSUBANK (2.5%) and MEDIA (1.8%) leading the pack. 

Excerpts of an interview with Mr C Vijaykumar, CEO and Prateek Aggarwal, CFO, HCL Technologies Ltd (HCLTECH) with CNBC -TV18 dated 26th April 2021:

• During the Mar-21 quarter, bookings stood at $3.1bn, led by 19 large deal wins. These deals are spread across geographies and industries. Most deals are spread across 3-5 years, of which four are integrated across service lines.

• The Company has prepared a list of seven countries i.e. Germany, Canada, Japan, Spain, Portugal, Mexico and Brazil. These are countries witnessing a large and growing IT market where the Company is currently not present. Setting up offices in new countries is a one-time exercise.

• The Company is also expanding hiring in the freshers space, considering the demand for the next few years. The hiring also involves certain cost elements.

• The Company has launched HCL Now, which is the Cloud version of its acquired products. This is strengthening partnerships of HCLTECH with hyperscalers.

• The Company is expected to deliver double-digit growth in constant currency. The management highlighted that they have provided floor price on revenue growth for next year. 

• The products and platforms business had an impairment charge of $16mn, leading to a 60 bps impact on margins.   

Asset Multiplier Comments:

• Backed by deal wins in both small and big pockets and continued momentum in cloud and data, the company looks set to achieve its target of double-digit growth over FY22E.
• Setting up offices in new countries to expand the geographical presence is expected to create a revenue stream and diversify the revenue base for the Company in the long run.

Consensus Estimates (Source: market screener website):

• The closing price of HCLTECH was ₹ 928/- as of 27-April-2021.  It traded at 18x/ 16x the consensus EPS estimate of ₹ 51.0/ 57.4 for 22E/23E respectively.
• The consensus price target is ₹ 1,119/- which trades at 19x the EPS estimate for FY23E of ₹ 57.4/-

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