HCL Technologies (Q4 F6/13)

India Infoline News Service | Mumbai |

HCL Tech’s Q4 F6/13 dollar revenues came in marginally ahead of expectation at US$1.23bn versus our estimate of US$1.22bn.

CMP Rs940, Target Rs1,110, Upside 18.1%
  • Dollar revenues ahead of expectation driven by IMS business; Software services continues to be weak

  • Broad based growth across business segments; Client mining improving

  • OPM beats estimate on the back improved operational efficiency, weak rupee; Employee addition tepid

  • Decent deal wins provide sustained revenue visibility; Management commentary comforting; Maintain BUY

Result table
(Rs mn)
Q4 F6/13
Q3 F6/13
% qoq
Q4 F6/12
% yoy
Net sales
69,443
64,247
8.1
59,191
17.3
Operating profit
16,288
14,393
13.2
13,008
25.2
OPM (%)
23.5
22.4
(18) bps
22.0
401 bps
Depreciation
(1,678)
(1,634)
2.7
(1,524)
10.1
Other income
782
888
(11.9)
(423)
-
PBT
15,392
13,647
12.8
11,061
39.2
Tax
(3,299)
(3,249)
1.5
(2,525)
30.7
Effective tax rate (%)
21.4
23.8
-
22.8
-
ESOP Charge
(118)
(207)
(43.0)
(128)
(7.8)
Adjusted PAT
11,975
10,191
17.5
8,408
42.4
Adj. PAT margin (%)
17.2
15.9
81 bps
14.2
471 bps
Reported PAT
12,093
10,398
16.3
8,536
41.7
EPS (Rs)
17.6
15.1
16.3
12.4
41.7
Source: Company, India Infoline Research

Dollar revenues ahead of expectation driven by IMS business; Software services continues to be weak

HCL Tech’s Q4 F6/13 dollar revenues came in marginally ahead of expectation at US$1.23bn versus our estimate of US$1.22bn. This 3.1% sequential growth (3.9% qoq in cc) was mainly supported by the sustained robust performance of the Infrastructure business which grew 9.4% qoq in cc terms. On the flip side, the software services business continued its sluggish trend growing 0.6% qoq. This tepid growth was on the back of 1.4% qoq in volumes and 0.8% correction in realisation. HCLT’s declared multi-year transformational deal wins of TCV US$1bn+ further vindicating its strategy focused integrated (total IT outsourcing) re-bid deals market. Out of these, 12 deals came from F500/G2000 clients indicating improving foot print of HCLT in these clients.


Broad based growth across business segments; Client mining improving

Another positive about Q4 F6/13 performance for HCLT was its broad based nature.  Amongst verticals, other than Retail/CPG, rest of the verticals witnessed strong growth.  Financial services, Telecom and manufacturing led the growth with 5.8%, 5.9% and 4.7% qoq growth sequentially in cc terms. Within services, except Enterprise application services (EAS) all the other services grew well. The growth in service lines was driven by Infrastructure services (+9.4% qoq), BPO (+3.9% qoq), Engg R&D services (+4.4% qoq) and Custom application services (+3% qoq). Across geographies, growth was driven by developed markets viz. Europe (+9.6% qoq) followed by Americas (+2.8% qoq).On the flip side, the RoW geography had a de-growth 3.6% qoq.


Among the clients, the top5/Top11-20 clients showed decent growth of 3.1%/7.8% qoq. Also, there has been noticeable improvement within client revenue buckets with US$50mn+/US$40mn+ clients improving by 1/3 respectively.


OPM beats estimate on the back of improved operational efficiency, weak rupee; Employee additions tepid

The Q4 F6/13 consolidated operating margin for HCLT was better than expected expanding 110 bps qoq to 23.5% (versus our estimate of 22.7%). The beat was on the back of operational efficiency gains (utilization, SG&A leverage) as well as rupee depreciation advantage which more than offset the headwinds from visa costs and realisation correction. The other income was higher than anticipated due to forex gain of Rs305mn versus our expectation of Rs200mn loss. The beat on margin and other income added with lower than expected ETR (21.6% v/s 24.2% last quarter) resulted in PAT coming in materially ahead of expected. The consolidated employee addition continued to be tepid with 1.3% qoq growth.

BSE 866.85 [6.15] ([0.70]%)
NSE 866.35 [8.85] ([1.01]%)

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