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HCL Tech: In line with expectations - Views on News from Equitymaster
 
 
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  • Oct 23, 2001

    HCL Tech: In line with expectations

    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.

    (Rs m) 4QFY01 1QFY02 Change
    Sales 3,692 3,724 0.9%
    Other Income 363 463 27.5%
    Expenditure 2,506 2,766 10.4%
    Operating Profit (EBDIT) 1,186 958 -19.2%
    Operating Profit Margin (%) 32.1% 25.7%  
    Interest - -  
    Depreciation 119 103 -13.4%
    Profit before Tax 1,430 1,318 -7.8%
    Extra-ordinary item - (240)  
    Stock based sales incentive expense/ (income) - (20)  
    Tax 107 119 11.2%
    Profit after Tax/(Loss) 1,323 979 -26.0%
    Net profit margin (%) 35.8% 26.3%  
    Diluted number of shares (m) 296.8 296.8  
    Diluted Earnings per share* 17.83 13.19 -26.0%
    P/E (x)   13.2  
    *(annualised)      

    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.

     

     

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