X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
HCL Tech: IMS, core software lead way - Views on News from Equitymaster
StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

HCL Tech: IMS, core software lead way
Jan 19, 2008

Performance summary
  • Topline grows by 6% QoQ in 2QFY08, driven by 6% QoQ growth in volumes and 1.6% QoQ improvement in pricing.

  • Infrastructure services and core software businesses grow 8% QoQ and 7% QoQ respectively.

  • Operating margins expanded marginally by 0.1% QoQ.

  • Bottomline expands by 8% QoQ, aided by higher operating profits and lower taxes.

  • Declares Re 1 per share interim dividend (dividend yield of 0.4%).

Financial performance: A snapshot…
(Rs m) 1QFY08 2QFY08 Change 1HFY07 1HFY08 Change
Sales 17,092 18,166 6.3% 28,446 35,258 23.9%
Expenditure 13,453 14,281 6.2% 22,216 27,734 24.8%
Operating profit (EBITDA) 3,639 3,885 6.8% 6,230 7,524 20.8%
Operating profit margin (%) 21.3% 21.4%   21.9% 21.3%  
Other income 504 542 7.6% 771 1,046 35.7%
Depreciation 686 724 5.5% 1,180 1,410 19.5%
Profit before tax 3,457 3,704 7.1% 5,821 7,161 23.0%
Tax 346 355 2.5% 425 701 64.8%
Minority interest & income of equity investee 28 21 -26.4% 31 49 56.8%
Profit after tax/(loss) 3,083 3,329 8.0% 5,365 6,412 19.5%
Net profit margin (%) 18.0% 18.3%   18.9% 18.2%  
No. of shares (m)         682.4  
Diluted earnings per share (Rs)         21  
P/E ratio (x)         12.5  

What has driven performance in 2QFY08?
  • HCL Tech recorded a 6.3% QoQ in topline driven by 6% QoQ growth in volumes and 1.6% QoQ growth in pricing. Appreciation in rupee however, dented the topline by 1.1% QoQ. Infrastructure management and core software services were main drivers of the topline, recording 8% and 7% QoQ growth respectively while the BPO revenues declined by 0.6% QoQ. The company achieved remarkable success in controlling the attrition, which came down to under 16%. It added 29 new clients and 2,300 employees during the quarter.

    Segmental performance
    (Rs m) 1QFY08 2QFY08
    Core Software    
    Revenue 12,316 13,199
    % of revenues 72.1% 72.7%
    EBITDA margins 21.4% 21.6%
    EBIT margins 18.0% 18.1%
    Infrastructure Services    
    Revenue 2,580 2,783
    % of revenues 15.1% 15.3%
    EBITDA margins 16.8% 16.8%
    EBIT margins 11.8% 12.0%
    BPO Services    
    Revenue 2,198 2,184
    % of revenues 12.9% 12.0%
    EBITDA margins 26.0% 26.0%
    EBIT margins 19.8% 19.9%

  • HCL Tech operating margins expanded by 0.1% mainly due to higher direct costs in the core software and higher SG&A in IMS. The EBIT margins remained stable. While in case of BPO, the direct costs increased by only 0.6% QoQ, this was set off by decline of 1.0% QoQ in SG&A costs thereby expanding EBITDA margins by 0.4%. In core software sector while SG&A as % of total sales remained constant on QoQ basis, direct costs have risen by 1.8% QoQ resulting in decline in operating margins in this segment. In IMS segment, while the direct costs have declined by 0.7% QoQ, a rise of 0.6% QoQ in SG&A restricted to EBITDA expansion to just 0.1% QoQ.

    Revenue break-up by service offerings
      1QFY08 2QFY08  
      Rs m % of total Rs m % of total Change
    Enterprise application system 2,017 11.8% 2,016 11.1% 0.0%
    Engineering and R&D services 4,239 24.8% 4,523 24.9% 6.7%
    Application development 6,068 35.5% 6,667 36.7% 9.9%
    Infrastructure Management 2,581 15.1% 2,779 15.3% 7.7%
    BPO 2,188 12.8% 2,180 12.0% -0.4%
    Total revenues 17,092 100.0% 18,166 100.0% 6.3%

  • HCL Tech recorded 8% QoQ growth in bottomline mainly due to higher operating profits and lower taxes. The operating profits expanded by 7% QoQ. Lower taxes and depreciation have also aided bottomline expansion.

    Revenue by Industry vertical
      1QFY08 2QFY08  
      Rs m % of total Rs m % of total Change
    Financial services 4,905 28.7% 5,304 29.2% 8.1%
    Hi-tech 5,128 30.0% 5,177 28.5% 1.0%
    Telecom 2,786 16.3% 2,925 16.1% 5.0%
    Retail 1,487 8.7% 1,599 8.8% 7.5%
    Media and Entertainment 940 5.5% 1,072 5.9% 14.0%
    Life Sciences 889 5.2% 1,017 5.6% 14.5%
    Others 957 5.6% 1,072 5.9% 12.0%
    Total 17,092 100.0% 18,166 100.0% 6.3%

What to expect?
At the current price of 267, the stock is trading at 11.2 times our estimated FY09 earnings. On the positive side, the company has, over the last eight quarters posted topline growth of over 8% QoQ, which denotes a consistent performance. However, on the negative side, the company in the last 4 quarters has failed to add a single client in the US$ 50 m and US$ 100 m range, the largest one being an addition of 1 client in US$ 40 m range in this quarter which has also come after 3 quarters.

To Read the Full Story, Subscribe or Sign In


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

HCL TECH. SHARE PRICE


Feb 20, 2018 (Close)

TRACK HCL TECH.

  • Track your investment in HCL TECH. with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

COMPARE HCL TECH. WITH

MARKET STATS