On October 12, IT services major HCL Technologies Ltd reported a 20% rise in its consolidated net profit for the quarter ended September 30, 2022 on the Y-O-Y basis. The share price fell by nearly 28% until the end of the day.
The company also declared an interim dividend of Rs 10 per share and sees 13.5 – 14.5 per cent growth in revenue in constant currency
Revenues rises by 20%, Net profit soars by 7%
On Wednesday, HCL Technologies reported a 5.2 percent sequential rise in consolidated revenue for the September quarter to Rs 24,686 crores. The consolidated net profit was up 6.3 percent at Rs 3,489 crore. On a YoY basis, the net profit has risen by 7.1% and the revenue soared by 19.5 per cent.
The TCV deal bookings for the quarter rose 6% on year and 16% sequentially to $2.38 billion. The software major bagged 11 large deals in the quarter, with eight of them in the services vertical.
The share of revenue from Americas for HCL Tech increased by 60 bps in the quarter to 64.8 percent in Q2. However, the share of revenue from Europe dipped by 30 bps to 27.5 per cent. In constant currency terms, the revenue growth in Europe was better than in the Americas in Q2. Revenue in Europe rose 6.9 percent sequentially, and in the Americas, it grew by 4.7 per cent.
HCL Tech did not add any new clients in the $50 million and $100 million baskets during the quarter. However, the company added three clients in the $5 million basket and 10 in the $1 million basket.
Margin & Expenses
Total expenses stood at INR 19,261 crore, up 23% YoY. The company depicted stellar margins with net and operating margins at 14% and 22%, respectively, in Q2 FY23.
Attrition:
The company’s attrition rate stood at 23.8% at the end of the second quarter, same as the previous quarter. The company added 8,359 employees in the second quarter, taking the total headcount to 2,19,325.
Dividend:
HCL has also declared an interim dividend of Rs 10 per share. The Record date has been fixed as October 20, 2022. The dividend will be paid on November 2, 2022.
Sectoral mix
In terms of sector mix, HCL Tech derived 21.6% of its revenue from Financial Services, 19.1% from manufacturing and 13.8% from Technology and services. Top 10 clients contributed around 20.7% to its revenue. In the quarter, 62.8% of the revenues came in USD currency and 28% in Euro.
New deals and clients:
The company won new contracts worth $2,384 million in the quarter ending September, registering 6% on-year growth. The number of large deals bagged by the company was 11 where 8 were in Services and 3 in Products.
Balance Sheet Position
As of September 30, 2022, total assets stood at INR 88,515 crore compared to INR 89,033 crore as of March 31, 2022. Cash and cash equivalents were Rs 6,810 crore. Operating cash flow came in at INR 4,020 crore.
Management Commentary:
Our new brand identity brings razor-sharp focus to our go-to-market strategy and execution capabilities to supercharge the digital transformation of our clients with the best of technology and people.”, Roshni Nadar Malhotra, Chairperson of HCL Tech.
“HCL Tech has delivered yet another solid performance this quarter with revenue growing at 3.8% QoQ and 15.8% YoY in constant currency and EBIT at 18% up 93 bps QoQ. Our services business grew 5.3% QoQ and 18.9% YoY in constant currency, led by strong demand for Cloud, Engineering and Digital services. This is a validation of the strategic choices we made and the effectiveness of our operational framework. Our bookings and pipeline continue to be very strong, which augurs well for our future growth. These reflect our constant and continuing efforts to supercharge outcomes for all our stakeholders. Our new brand positioning of Supercharging Progress has been well received and I am confident it will help us deliver on our strategic priorities” said C Vijayakumar, MD and CEO.
Growth Outlook
The company raised its revenue growth guidance for FY23. HCL Tech now sees 13.5 – 14.5 per cent growth in revenue in constant currency, against 12-14 percent predicted earlier.
However, the company reduced the upper end of its EBIT margin guidance for FY23. It now sees margins in the 18-19 per cent range against 18-20 per cent earlier. The company expects services revenue to grow 16-17 per cent on year in constant currency terms in FY23.
Our Viewpoint
In the current times when global recession is overhead, HCL Tech performed on average for the quarter compared to its peers. We at AlphaStreet maintain a hold viewpoint on the stock witnessing the fair valuation of the share price compared to its peers. HCL Tech is dependent on large deals for growth. So, one has to be watching out for deal activity in the market. Trends in the ER&D business are also important to track as the segment is discretionary-heavy and prone to cuts in a slowdown.