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HCL Tech: Bottomline blues… - Views on News from Equitymaster
 
 
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  • Aug 30, 2002

    HCL Tech: Bottomline blues…

    HCL Tech, the fourth largest software company in the country, has announced an encouraging 16% topline growth in FY02. Bottomline has however, disappointed with an 11% dip, on account of a Rs 612 m write off for doubtful debts and markdown in investments.

    (Rs m) 3QFY02 4QFY02 Change FY01 FY02 Change
    Sales 4,090 4,323 5.7% 14,051 16,293 16.0%
    Other Income 488 227 -53.4% 1,395 1,567 12.4%
    Expenditure 3,047 3,273 7.4% 9,754 12,139 24.5%
    Operating Profit (EBDIT) 1,043 1,051 0.7% 4,297 4,154 -3.3%
    Operating Profit Margin (%) 25.5% 24.3%   30.6% 25.5%  
    Interest            
    Depreciation 152 177 16.2% 421.2 581 37.9%
    Profit before Tax 1,378 1,101 -20.1% 5,271 5,140 -2.5%
    Extra-ordinary item 0 -367   0 (612)  
    Stock based sales incentive expense/ (income) 5.7 -14.3 -350.9% 82 -4 -104.9%
    Tax 61 58   389 279  
    Profit after Tax/(Loss) 1,312 690 -47.4% 4,801 4,253 -11.4%
    Net profit margin (%) 32.1% 16.0%   34.2% 26.1%  
    Diluted number of shares (m) 285.4 285.4   285.4 285.4  
    Diluted Earnings per share* 18.4 9.7   16.8 14.9  
    P/E (x)   21.2     13.8  
    *(annualised)            

    In the fourth quarter, the company has reported a 6% growth in its topline, which was mainly from a 6.3% sequential growth in volumes. Topline growth has been restricted due to a sequential 0.8% fall in its billing rates. Of the total revenues, organic growth was 6% sequentially, while its inorganic businesses have grown by 27%. The inorganic businesses contributed 16% to the total revenues in the fourth quarter. Extraordinary provisions for doubtful debts and write down of investments have pruned profits by 47% sequentially.

    On a stand alone basis, the company has reported a 6% sequential growth in revenues. Growth in the fourth quarter has been significant considering a de-growth in the previous two quarters. HCL Tech has been able to increase its revenues from the end user applications business. This segment now contributes 27% of the total revenues.

    Operating margins of the company on a consolidated basis, have declined considerably in FY02. The margins have fallen by 500 basis points to 26%. There has been a significant increase in the company's direct costs, up by 26%. This could mainly be attributed to an increase in employee costs, as the company has increased its total strength by 518 during the full year (total employees - 6,463). The company has also reported a 21% increase in its selling, general and administrative expenses.

    HCL Tech's revenues from its equity investments, which forms a major part of its post tax income has reduced considerably. The income from this avenue (included in other income) has gone down by 24%. The company's bottomline has also been severely affected by a Rs 612 m provision for bad and doubtful debts and mark down in investments.

    At the current market price of Rs 205 the stock is trading at 14x its FY02 earnings.

     

     

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