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: Forex losses hit hard - 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: Forex losses hit hard
Aug 2, 2008

Performance summary
  • Topline grows by 12% QoQ during 4QFY08, 27% YoY during FY08 (June ending fiscal). Growth largely on the back of increased volumes (hours worked) and good performance from the core services business.
  • Operating margins stable at 22.2% during the fiscal. Higher employee utilisation levels, increased offshore share in revenues and lower SG&A costs (as percentage of sales) helped in maintaining the margins.
  • Net profits decline by 17% YoY during the fiscal, largely impacted by forex losses. Excluding the same as also the forex gain recorded in FY08, profits are up 10% YoY for the fiscal.
  • Adds a net of 8,700 employees during the fiscal; total employee strength crossed the 50,000 mark by the end of June 2008. Attrition rate for IT services declines to 14.8% in FY08, from 15.2% in FY07.


Financial performance: A snapshot...
(Rs m) 3QFY08 4QFY08 Change FY07 FY08 Change
Sales 19,448 21,688 11.5% 60,336 76,394 26.6%
Expenditure 15,117 16,604 9.8% 46,966 59,455 26.6%
Operating profit (EBITDA) 4,331 5,084 17.4% 13,370 16,939 26.7%
Operating profit margin (%) 22.3% 23.4% 22.2% 22.2%
Other income 499 355 -28.9% 980 (1,369) -239.7%
Forex gain / (loss) (271) (2,999) 3,281 (3,067)
Depreciation 773 850 10.0% 2,531 3,033 19.8%
Profit before tax 3,786 1,590 -58.0% 15,100 9,470 -37.3%
Tax 368 203 -44.8% 1,485 1,271 -14.4%
Minority interest & income of equity investee (7) (23) 228.6% 65 19 -70.8%
Profit after tax/(loss) 3,425 1,410 -58.8% 13,550 8,180 -39.6%
Net profit margin (%) 17.6% 6.5% 22.5% 10.7%
No. of shares (m) 675.3 682.7
Diluted earnings per share (Rs) 20.1 12.0
P/E ratio (x)* 17.3
*On the basis of trailing 12 month

What has driven performance in FY08?
  • HCL Tech recorded a 27% YoY growth in sales during FY08. This growth was largely driven by the core software business, which grew its sales by 36% YoY. The other two segments of infrastructure service and BPO recorded growth of 45% and 21% respectively during the fiscal.

    Segmental performance
    (Rs m) FY07 FY08 Change
    Core Software
    Revenue 10,098 13,720 35.87%
    % of revenues 16.7% 18.0%
    EBITDA margins 22.6% 22.4%
    EBIT margins 19.3% 18.9%
    Infrastructure Services
    Revenue 1,957 2,833 44.76%
    % of revenues 3.2% 3.7%
    EBITDA margins 17.3% 17.6%
    EBIT margins 11.7% 12.7%
    BPO Services
    Revenue 1,841 2,236 21.46%
    % of revenues 3.1% 2.9%
    EBITDA margins 24.6% 26.6%
    EBIT margins 17.4% 20.9%

  • Based on industry verticals, HCL Tech recorded the best performance in the 'hi-tech' vertical, which provides technology solutions for semiconductor and chip design. This vertical recorded sales growth of 16% QoQ during 4QFY08 (the segment account for 31% of revenue). Despite the ongoing crisis in the banking and financial services industry in the US, the company's BFSI segment managed to grow its sales by 7% QoQ.

    Revenue break-up by service offerings
    Revenue break-up by service offerings 3QFY08 4QFY08 Change
    Enterprise application system 10.7% 2,081 10.8% 2,342 12.6%
    Engineering and R&D services 25.4% 4,940 26.7% 5,791 17.2%
    Custom Application (Industry Solutions) 37.5% 7,293 36.2% 7,851 7.7%
    Infrastructure Management 14.8% 2,878 15.1% 3,275 13.8%
    BPO 11.6% 2,256 11.2% 2,429 7.7%
    Total revenues 19,448 21,688 11.5%
    Revenue by Industry vertical 3QFY08 4QFY08
    Financial services 28.40% 5,523 27.3% 5,921 7.2%
    Hi-tech 29.50% 5,737 30.6% 6,637 15.7%
    Telecom 16.40% 3,189 16.0% 3,470 8.8%
    Retail 8.40% 1,634 8.8% 1,909 16.8%
    Media and Entertainment 5.70% 1,109 5.6% 1,215 9.6%
    Life Sciences 5.50% 1,070 5.7% 1,236 15.6%
    Others 6.10% 1,186 6.0% 1,301 9.7%
    Total 19,448 21,688 11.5%

  • During FY08, HCL Tech added a net of 8,700 employees to its rolls, thus crossing the mark of 50,000 at the end of June 2008. Incidentally, a large part of the net addition came through in the infrastructure and BPO segments. The company achieved success in controlling attrition, which came down to 14.8% in FY08 from 15.2% in FY07.

  • HCL Tech's operating margins remained stable at 22.2% during the fiscal, mainly due factors like higher employee utilisation levels, increased offshore share in revenues and lower SG&A costs (as percentage of sales). The depreciation of the rupee against the US dollar in the last six months (rupee depreciated 8% against the dollar in last six months) also helped the profitability.

  • HCL Tech's net profits grew by 10% during FY08. This was excluding the forex losses that the company incurred due to volatility in the rupee against the dollar. Including forex losses, the net has declined by 40% YoY during the fiscal.

What to expect?
At the current price of 207, the stock is trading at a multiple of 17.3 times its FY08 earnings. While the management has indicated of some kind of pricing pressure from clients, it has also hinted at trying to lock in long-term projects at fixed price, which gives the revenues a greater stability. The company expects the momentum to remain strong from a medium to long-term perspective, and sees traction in the European and Asia-Pacific market.

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 22, 2018 09:11 AM

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