HCL Technologies has posted a 0.9% sequential growth in topline for 1QFY02. However, the bottomline has dipped by 26%. This is including extra-ordinary expenses of Rs 240 m. Excluding the extra-ordinary income and non-cash sales incentives the bottomline has dipped by 9% QoQ. The extra-ordinary item of Rs 240 m is a write off for doubtful debts and diminution in the value of investments. On a YoY basis the topline has grown by 17% and the bottomline has grown by 20% excluding extra-ordinary expenses and stock based sales incentives.
However, the disappointing aspect of the result was the fact that HCL Tech’s operating margins have dropped sharply. The company added 20 new clients during the quarter. This has taken the total number of clients for the company to 360. Clients added during the quarter include General Motors, Hitachi, World Bank, Motorola, Seagate, Alcoa and Zurich Capital Markets.
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Stock based sales incentive expense/ (income)
Profit after Tax/(Loss)
Net profit margin (%)
Diluted number of shares (m)
Diluted Earnings per share*
Offshore development has shown a strong growth. The contribution to revenues from the offshore business increased from 65% in 4FY01 to70% in 1QFY02. This translates to a 9% sequential growth in offshore revenues. On a YoY basis, the offshore revenues have grown by 37%. The company earned 41% of its revenues from technology development services and 75% of its revenues from its high value added services.
During the quarter, the company acquired 51% stake Deutsche Software. This will give HCL Tech a strong footing in the BFSI (banking, financial services and insurance) domain. The company also has taken an initiative in the BOP space. E-serve, a 100% subsidiary of HCL Tech, will offer human resource, accounting and transaction processing services.
While the topline is above expectations as the markets were expecting a sequential dip, the bottomline is more or less in line with expectations. The markets were expecting a sequential dip in bottomline in the range of 8% to 12%.
The management has reiterated its earnings guidance for FY02. It expects a 25% growth in topline and a 18% growth in bottomline after provisioning. At the current market price of Rs 172, the stock is trading at a P/E multiple of 13 times its 1QFY02 annualised earnings. The stock price may not see much of a change in valuation as the results are more or less in line with expectations.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407