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%