HCL Technologies

18 Jan

Expect higher demand for application modernization, cloud transformation, and digital engineering – HCL Tech

Update on the Indian Equity Market:

On Tuesday, Nifty closed lower at 18,113 (-1.1%) led by REALTY (-2.6%), AUTO (-2.4%), and METALS (-2.2%) were the top losers while there were no gainers.The top losers were MARUTI (-4.1%), TATACONSUM (-3.9%), and ULTRACEMCO (-3.8%) while AXISBANK (+1.8%), ICICIBANK (+0.5%), and HDFCBANK (+0.4%) were the top gainers.

Edited excerpts of an interview with Mr. Vijayakumar, MD & CEO, and Mr. Prateek Aggarwal, CFO, HCL Tech with CNBC TV18 on 17th January 2021:

  • The company’s order pipeline is healthy, with transaction wins increasing by 64% YoY in 3QFY22. Application modernization and cloud computing were driving the growth.
  • Hiring has grown to around 10,500 employees in the 3QFY22E. The management expects greater demand visibility for application modernization, cloud transformation, and digital engineering.
  • The management expects a strong 4QFY22E due to increased booking and order visibility as a result of the services segment’s hiring of over 10,000 individuals. Even if the firm has a flat 4QFY22E, management anticipates the company will expand at a rate of 12.6-12.7 percent in FY22E.
  • The company’s margins were five basis points (bps) higher in 3QFY22 QoQ, while services were a little weaker on the margin. Due to expenditures associated with growth, such as knowledge transfer fees, the IT services margin was lower. The management also highlighted that wage hikes in 3QFY22 and attrition levels, both of which have expenses, had an impact on margins. Management believes that attrition levels have reached a peak and that attrition should begin to decline. The management expects the margin to return to typical levels of approximately 20% by 2QFY23E to 3QFY23E.
  • In terms of fresher recruiting, the company plans to hire 20,000-22,000 freshers for FY22E.
  • The company’s recent acquisition of Hungary-based data engineering services provider Starschema Ltd for $ 42.5 mn is expected to help scale the company’s Eastern European footprint, particularly in Hungary. This is a data engineering consulting organization that offers front-end consulting, which can be a good trigger for a lot of downstream work. In Hungary, the corporation has solid mindshare attracting top personnel. As a result, the firm will be able to develop its Eastern European footprint more quickly, particularly in Hungary. The company will continue to seek assets that can enhance its capabilities, particularly in a high-demand market.
  • When it comes to the products and platforms business, management expects it to increase in the low single digits. The management anticipates that this will be a long-term play that is still getting modernized.
  • In terms of deal wins, the net new TCV in 3QFY22 was $2140 mn, a 64 percent increase from the previous year. The high TCV was due to 8 significant transactions on the services side, another 8 deals on the products and platforms side, and a large number of smaller deals.

 

Asset Multiplier Comments

  • We believe HCL Tech has a solid business model and a track record of successful execution. The company plans to hire at least 20,000 additional freshers by FY22E (with 15,000 already on board) and double the amount by FY23E. This reflects management’s confidence in future deal wins.
  • We believe the company will likely be at the lower end of the 19-21 percent EBIT guidance band in 4QFY22E, but the long-term growth narrative remains intact, bolstered by greater growth in cloud, ER&D, and data modernization.

Consensus Estimate (Source: market screener website)

 

  • The closing price of HCL Tech was ₹ 1,220/- as of 18-January-2022. It traded at 25x/22 x/ 19x the consensus earnings estimates of ₹ 49/ 56/ 63 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,460 /- implies a P/E Multiple of 23x on FY24E EPS estimate of ₹ 63/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

 

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19 Oct

Organic growth to sustain as guided, no big bang acquisitions planned– HCLTECH

Update on the Indian Equity Market:

On Tuesday, NIFTY50 ended its 7-day winning streak to close at 18,419 (-0.3%), dragged down by REALTY (-4.7%), PSUBANK (-3.7%), and FMCG (-3.2%). The sectoral gainers were IT (2.2%), and FINANCIAL SERVICES (0.2%). Among the stocks, TECHM (+4.3%), LT (+3.3%), and INFY (+1.8%) led the gainers while ITC (-6.3%), TATAMOTORS (-4.9%), and EICHERMOT (-4.5%) were the top laggards.

HCLTECH missed the street estimates in the declared earnings for the quarter ended 30th September 2021. Mr. C Vijayakumar, Chief Executive Officer, and Mr. Prateek Aggarwal, Chief Financial Officer at HCL Technologies discussed the quarter gone by and reaffirmed its annual FY22 guidance in an interview with CNBC-TV18 on 18th October 2021:

  • The Products and Platforms business has been a laggard in FY22, with quarterly slippages affecting the guidance of the segment but the impact is immaterial to the top-line growth, where the company has reaffirmed its EBIT margin guidance of 19-21%.
  • Q2FY22 was the best quarter for the company with unprecedented growth in client mining, large deal wins, and total headcount. The company has introduced a formal dividend pay-out policy on the back of its commitment to rationalise capital allocation.
  • The Company has rolled out the first tranche of wage hikes in Q2FY22 and expects the second tranche to be rolled out in Q3FY22. It expects the slippages in the Products and Platforms business to be recovered in the upcoming quarter.
  • The company had a track record of a high dividend pay-out until FY20. With a significant outflow due to an acquisition, the pay-outs were subdued over the past few quarters. With a recovery in free cash flows and demand from investors, the company has decided to come up with a formal dividend policy with higher pay-outs.
  • The current demand environment has established momentum in the organic business. The company plans to focus on executing current demands rather than go all-in after a major acquisition. The company may add small tuck-ins to expand capabilities or geographies.
  • In Q2Fy22, the company had a strong deal win rate. The pipeline in Q1FY22 was at the highest level ever, it slightly moderated because the company closed a lot of deals.
  • The pipeline has a good mix of mid-size and large deals. There is also a lot of momentum in existing accounts, where customers are ramping up on several digital initiatives, with smaller ticket transformational projects are being taken up by the company.
  • The company expects to exceed its initial guidance on hiring 20,000-22,000 freshers on the back of robust demand and backfilling attrition in the recent quarters.
  • Momentum is seen across all verticals with BFSI and Manufacturing being the leaders. The manufacturing vertical is seeing an uptick in engineering services with various transformational deals and projects being undertaken.

 

Asset Multiplier Comments

  • COVID-19 pandemic has unmistakably created a paradigm shift in the ITES Industry, with a strong focus on digitisation around the world across both size and verticals will result in a high growth period for the industry.
  • HCL Tech like its peers will also continue to face supply-side crunch and attrition problems. The situation is expected to improve over the next few quarters which will help to reduce the margin pressures.

Consensus Estimate: (Source: market screener website)

  • The closing price of HCLTECH was ₹ 1,232/- as of 19-October-2021. It traded at 25x/ 22x/20x the consensus earnings estimate of ₹ 49/ 56/ 63. for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 1360/- implies a PE multiple of 22x on FY24E EPS of ₹ 63/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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22 Jul

Confident of double-digit growth in FY22 – HCL Tech

Update on the Indian Equity Market:

On Thursday, NIFTY ended higher at 15,824 (+1.2%) as it closed near the intraday high level of 15,835. METAL (+3.0%), IT (+1.8%), and REALTY (+1.75%) led the sectoral gainers and there were no sectoral losers. Among the stocks, JSWSTEEL (+5.9%), TECHM (+5.4%), and BAJFINANCE (+4.2%) led the gainers while HINDUNILVR (-2.3%), ASIANPAINT (-1.8%), and BAJAJ-AUTO (-1.2%) led the losers.

Excerpts of an interview with Mr. C Vijayakumar, CEO & MD, and Mr. Prateek Aggarwal, CFO of HCL Technologies (HCLTECH) published with CNBC TV18 on 20th July 2021:

  • The company has seen a second consecutive quarter of revenue miss due to execution capabilities getting hit by the second Covid wave, and the company has a lot of concentration in NCR. As the revenue will recover in Q2FY22, the company is confident of the full year’s double-digit growth performance.
  • Speaking on segments, the products and platform segment has been disappointing for the last two quarters. The company expects a low single-digit growth for this segment, as around 25% of the products are either declining in nature or are being discontinued. IT services had a muted quarter, due to some executions and transitions in Europe that are taking longer than expected.
  • The company is expanding in new markets (geographically) categorized as Focus countries and New Frontier countries. The company has a reasonable presence in the countries under the Focus category and the growth rate will be higher than the company growth rate. New frontier countries are mid to long-term bets. These markets have to be built and are expected to give good outcomes in a couple of years.
  • The deals that the company has won are organic in nature, and a lot of them require to be built by hiring more talent, and onboarding them. The hiring of freshers could be more than the current guidance of 20,000-22,000. Speaking on salary hikes, the salaries are currently the same at entry-level, but the company expects to see a salary hike percentage in the next couple of years to be more than the rest of the company.
  • The company has accomplished a very good quality order book in the last 2 quarters, a lot of it being good long-term programs having annuity revenues, and are good capacity programs for digital transformation.

Asset Multiplier Comments

  • As the country recovers from execution capability-related issues caused by the second covid wave, the revenues can be expected to recover in FY22.
  • A strong order book that contributes to annuity revenues will position the company better in the mid to long term.

Consensus Estimate: (Source: market screener website)

  • The closing price of HCLTECH was ₹ 979/- as of 22-July-2021. It traded at 20x/17x/16x the consensus earnings estimate of ₹ 50/57/62 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 975/- implies a PE multiple of 16x on FY24E EPS of ₹ 62/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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27 Apr

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/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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18 Jan

Confident of leading industry performance for next 2-3 years – HCL Tech

Update on Indian Equity Market:

Markets started the fresh week on a selling spree as Nifty closed the day 205 points lower at 14,228. The intensity of selling was such that only six out of 50 stocks closed the day in green led by UPL (6.3%), RELIANCE (2.1%), and TITAN (1.3%) while TATAMOTORS (-6.1%), TATASTEEL (-5.9%), and ONGC (-5.1%) led the losing pack. All the sectoral indices closed the day in red with METAL (-4.6%), PSU BANK (-3.1%), and PHARMA (-3.1%) bleeding the most.

Excerpts of an interview with Mr C. Vijayakumar, President & CEO- HCL Technologies Ltd (HCL Tech) with CNBC TV18 dated 15th January 2021:

  • The company reported revenue growth of 3.5%, higher than the guidance. The margin for the quarter was also at a six-year high. Mr Vijayakumar said that the company has outperformed guidance for two quarters in a row led by a stupendous performance from products and platforms segment.
  • He said that DWS acquisition would contribute to 1% growth in 4QFY21E. The company has signed 13 deals across verticals. The company is positive about the outlook for FY22E.
  • The next five years are expected to be better than the past five years. The company is expected to lead the industry performance for the next 2-3 years. 
  • More work and revenue shifting of offshore and sales, general, and administrative (SGA) leverage contributed to superior margin performance in 1HFY21. Some of the expenses are expected to come back, but not at pre-COVID levels.
  • The company gave the salary increments to a large section of employees during 3QFY21. This has led to a headwind of 50 bps in margins. Further, the company is expected to give increments to seniors and a larger population which would be eroding about 80 bps from the margins.

Consensus Estimate: (Source: market screener)
• The closing price of HCL Tech was ₹ 978/- as of 18-January-2021. It traded at 20x/ 19x/ 17x the consensus earnings estimate of ₹ 49.3/ 52.0/ 58.0 for FY21E/FY22E/23E respectively.
• The Consensus price target of HCL Tech was ₹ 1,073/- as of 18th January 2021 which is 19x of FY23E EPS estimate of ₹58.0/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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20 Oct

HCL Tech to roll out salary hikes for all employees in phases

Update on the Indian Equity Market:
On Monday, NIFTY closed flat at 11,873 (+0.9%). Top gainers in NIFTY50 were ICICI bank (+5.1%), Nestle (+4.5%), and GAIL (+4.2%). The top losers were Divi’s Lab (-3.6%), Eicher Motor (-3.1%), and Hero Motocorp (-2.9%). Top sectoral gainers were PSU BANK (+4.2%), BANK (+3.1%), and PVT BANK (+3.2%) and the sectoral losers were PHARMA (-1.7%), MEDIA (-1.6%), and AUTO (-1.1%).

Excerpts of an interview with Mr. C VIjaykumar, CEO and Mr. Prateek Aggarwal, CFO, HCL Technologies (HCLT) with ET Now dated 16th October 2020:

• They signed 15 transformational deals. The momentum in the market for modernisation and digital transformation services has been great.
• The life sciences and healthcare and retail CPG verticals grew 8% plus sequentially which is a very impressive performance. All verticals, all geographies, all service lines, and all modes had a sequential growth. So it is a very good all-round performance.
• Some amount of recovery is due to the dip that they had in the first quarter but a lot of transition of deals that were done in the previous quarter got done extremely well which helped in ramping up revenues.
• A lot of existing customers continue to demonstrate their faith by giving them more projects and some incremental work which all got built. The digital foundation, which is their erstwhile infrastructure services, is very strong.
• In the second half also they have projected an overall margin growth. They have upgraded the guidance. Now 20%-21% is the full-year EBIT guidance. So in the second half, they will continue to see a good margin performance.
• The salary increases that they are giving will create a certain impact as they get into the second half of the year. That is why overall margins in H1 were ~21% but for the full year, they are guiding it to be 20% to 21%.
• Mode 1 has got a lot of digital foundation services that has also grown impressively. Mode 2, of course, has grown almost 7% sequentially and almost 15% plus from a year-on-year perspective.
• This is all the new technologies including cloud solutions, application modernisation, analytics, internet of things and cybersecurity. This is good for the margin profile apart from the cost controls that are automatically in place. Due to some of the higher value services increasing as a ratio is also good from a margin perspective.
• The Board has decided to double the dividend that they have been paying on a per quarter basis. So far they were paying Rs 2 per share per quarter and now in this quarter, the board has doubled the Rs 2 per share per quarter to now Rs 4 per share per quarter.
• The important thing is this is not a one-time kind of a thing. It is something that they intend to continue for the quarters going forward and that is the important thing.
• The overall pipeline is at an all-time high. Their pipeline has increased by almost 35% compared to what it was. Their booking increased by 35% compared to what it was in the last quarter. The pipeline has increased by almost 20% and it is at an all-time high.
• However, conversion of these deals and that converting into revenue is normally a 3-6-months cycle. They have done good bookings in the last two quarters.

Consensus Estimate: (Source: market screener and investing.com websites)

The closing price of HCLT was ₹ 846/- as of 19th October 2020. It traded at 19x/ 17x/ 15x the consensus earnings estimate of ₹ 45.3/ 50.3/ 55.7 for FY21E/22E/23E respectively.
The consensus price target of HCLT is ₹ 937/- which trades at 17x the earnings estimate for FY23E of ₹ 55.7/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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11 May

Covid-19 will push a lot more customers to look at outsourcing: C Vijayakumar, HCL Technologies Chief Executive Officer (CEO)

Update on the Indian Equity Market:

On Friday, NIFTY ended up 53 pts (+0.57%) at 9251 level.

Among the sectoral indices, PHARMA (2.13%), FMCG (1.9%) and IT (0.83%) were among the top gainers while PSU BANK (-1.9%), AUTO (-1.29%) and PVT BANK (-0.7%) were the losers. HINDUNILVR (4.3%), SUNPHARMA (+3.9%) and DRREDDY (+3.7%) were the top gainers. NTPC (-3.7%), M&M (-3.7%) and AXISBANK (-3.6%) were the top losers.

 

Covid-19 will push a lot more customers to look at outsourcing: C Vijayakumar, HCL Technologies Chief Executive Officer (CEO)

 

Edited excerpts of an interview with Mr C Vijayakumar, Chief Executive Officer (CEO) of HCL Technologies:

 

  • Digital transformations at global companies, expected over the next two to three years, will now hasten in crisis-mode due to the Covid-19 pandemic. Mr Vijayakumar said sectors or companies that were not looking at outsourcing will do so now to save costs.

 

  • When asked between the United States and Europe, where does he expect growth to pick up, he said that the US and Europe are not going to be very different, because in Europe, some geographies are already opening up. Around 23 states in the US have also already relaxed some guidelines and there is some hope that things will stabilize quickly, but customer behavior may not change immediately.
  • His views on traditional and digital services in coming fiscal years: Traditional services also have some very strong propositions, like digital workplace, engineering services. Some of the demand is intact and it is only getting accelerated. So, barring the short-term challenge, HCL Technologies will have good growth momentum. Mr. Vijaykumar thinks there could be a hit in the first quarter for sure. Industrial, auto, and aero have been impacted significantly, and non-grocery retail is also quite seriously impacted. But, almost 12% of revenue comes from Life Sciences and close to 20% of revenue comes from tech services. Both are strong verticals.
  • When asked about the kind of projects and wins expected after the recovery, he replied that Digital spends will (only) accelerate. Whatever transformation was expected to happen over the next two to three years, it’s almost going to get done in crisis mode, because for all the businesses, digital is the most viable channel to engage. He sees acceleration in cloud adoption, digital transformation, spend on digital workplace and cybersecurity. He believes the hospitals of the future will only have operation theatres and ICUs, everything else will be done through telemedicine.
  • He further informed that since work from home has been implemented, the productivity is much higher. They have tools to track productivity of every individual. Currently, there is a lockdown so obviously everybody is glued on to work, but how a large-scale work from home stacks up in a non-lockdown scenario needs to be seen in future.
  • He stated that HCL Technologies is very open to look into the opportunities to acquire companies, products, platforms or capabilities if there are attractive assets available. They have not only been acquisitive, but have made the acquisitions work.

 

Consensus Estimate: (Source: market screener)

  • The closing price of HCL Technologies was ₹ 519/- as of 8–May-20. It traded at 13x/ 11.5x the consensus EPS estimate of ₹ 40.2/45.1 for FY20E/ FY21E respectively.
  • Consensus target price of ₹ 580/- implies a PE multiple of 13x on FY21E EPS of ₹ 45.1/-

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

 

 

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