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HCL Tech: Other income drives profits - Views on News from Equitymaster
 
 
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  • Jan 19, 2001

    HCL Tech: Other income drives profits

    HCL tech has shown a QoQ (based on consolidated statements) growth of 9% in sales in 2QFY01. Net profit has risen by 29.2% compared to 1QFY01 due to a jump of 156% in other income . The higher other income is due to HCL Tech's unique business model where in it has strategic investment in other IT firms.

    Internet and e-commerce revenues for the quarter stood at Rs 1,746 m comprising of 51% of the revenues compared to 41% in 1QFY01. Technology Development Services at Rs 1,515 m had a share of 44% of the revenues (34% in 1QFY01). It is quite opposite to Wipro’s performance. Wipro reversed its figures in favour of technology services. The share of R&D services grew from 49% is 2QFY01 to 51% in 3QFY01. HCL seems to have taken Internet and e-commerce more aggressively.

    The combined contribution of Technology Development Services, Software Product Services and Networking Services (high value added services) was 77% of the total revenues. These areas typically have higher billing rates and therefore would mean higher profit margins. However, compared to industry standards HCL Tech’s profits margins at 30% are low, but the positive is that it has improved compared to the previous quarter.

    Offshore centric revenues constitute 63% of 2QFY01 revenues the figure was same for the last quarter. The top 5, top 10 and top 20 customer contributed to 23%, 35% and 45% respectively to the revenues. Number of new customers added in the 2QFY01 was 18.The dot-com exposure was less that 5% of revenues. Thus, the company has de-risked its client portfolio.

    (Rs m) 1QFY01 2QFY01 Change
    Sales 3,140 3,423 9.0%
    Other Income 160 410 156.3%
    Expenditure 2,230 2,409 8.0%
    Operating Profit (EBDIT) 910 1,014 11.4%
    Operating Profit Margin (%) 29.0% 29.6%  
    Interest 10 -  
    Depreciation 90 98 8.9%
    Profit before Tax 970 1,326 36.7%
    Other Adjustments 90 -  
    Tax 100 86 -14.0%
    Profit after Tax/(Loss) 960 1,240 29.2%
    Net profit margin (%) 30.6% 36.2%  
    Diluted number of shares (m) 139.8 279.5  
    Diluted Earnings per share* 13.7 17.7  
    *(annualised)      

    At a market price of Rs 745 the stock is trading at a P/E multiple of 41 times its 2QFY01 annualised earnings.

     

     

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