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HCL Tech: A Muted Performance - Views on News from Equitymaster
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HCL Tech: A Muted Performance
Dec 29, 2016

HCL Technologies announced its second quarter results for FY17. The company reported a 1.6% QoQ increase in sales and a 1.9%% QoQ fall in net profits. Here is our analysis of the results.

Performance summary
  • Consolidated sales increased by 1.6% QoQ in 2QFY17. In constant currency terms, sales were up 0.5% QoQ. In US$ terms, sales were up 1.9% QoQ.
  • Operating profits were down by 0.8% QoQ. The operating margin was lower sequentially at 21.7%.
  • The other income was up by 5.7% QoQ while depreciation & amortization increased 3.4% QoQ.
  • The consolidated net profit decreased by 1.9% QoQ. The poor bottomline performance was largely due to the muted revenue growth.
  • The company declared an interim dividend of Rs 6 per share.

    Consolidated Financial performance
    (Rs m) 1QFY17 2QFY17 Change 1HFY16 1HFY17 Change
    Sales 113,363 115,192 1.6% 198,740 228,555 15.0%
    Expenditure 88,123 90,164 2.3% 155,630 178,287 14.6%
    Operating profit (EBITDA) 25,240 25,028 -0.8% 43,110 50,268 16.6%
    Operating profit margin (%) 22.3% 21.7% 21.7% 22.0%
    Other income (net of finance costs) 1,951 2,063 5.7% 3,950 4,014 1.6%
    Forex gain/(loss) 660 311 -52.9% 580 971
    Depreciation & Amortization 1,766 1,826 3.4% 2,590 3,592 38.7%
    Profit before tax 26,085 25,575 -2.0% 45,050 51,660 14.7%
    Tax 5,500 5,402 -1.8% 9,000 10,903 21.1%
    Minority interest 32 16.8 0.00 49
    Profit after tax/(loss) 20,552 20,156 -1.9% 36,050 40,708 12.9%
    Net profit margin (%) 18.1% 17.5% 18.1% 17.8%
    No. of shares (m) 1,410.9
    Diluted earnings per share (TTM) 56.1
    P/E ratio (x)* 14.6

    *On the basis of trailing 12 months

  • What has driven the performance in 2QFY17?

  • In terms of the performance metrics, the company's performance was weak in the core infrastructure management segment business.

    Segment-wise performance
    (Rs m) 1QFY17 2QFY17 Change
    Revenue by service offerings
    Application Services 43,418 46,538 7.2%
    Engineering and R&D services 20,065 22,117 10.2%
    Infrastructure Management Services 45,232 40,432 -10.6%
    BPO 4,648 6,105 31.4%
    Revenue by geography
    Americas 67,905 67,618 -0.4%
    Europe 35,596 36,516 2.6%
    RoW 9,863 11,058 12.1%
    Revenue by industry vertical
    Financial services 26,754 30,065 12.4%
    Manufacturing 37,637 37,437 -0.5%
    Telecom, Media & Entertainment 10,316 11,058 7.2%
    Retail & CPG 11,336 10,137 -10.6%
    Healthcare 13,490 14,284 5.9%
    Public Services 13,263 11,519 -13.2%
    Others 567 691 21.9%
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