Hold HCL Technologies: A EBIT Margin Surprise
Hold HCL Technologies: A EBIT Margin Surprise
Hold HCL Technologies: A EBIT Margin Surprise
May-19
Jul-19
May-20
Mar-19
Apr-19
Oct-19
Nov-19
Dec-19
Jan-20
Mar-20
Apr-20
Feb-19
Jun-19
Aug-19
Sep-19
Feb-20
Mode-2 solutions (19.2% of revenue) led the growth, +7.1% QoQ in CC. Amongst Absolute 13.3 (15.8) (9.2)
verticals, Technology and Services (16.2% of revenue) grew at a strong pace of +7.2% Rel to Sensex 8.7 7.8 8.7 HCL Technologies Ltd. Sensex
QoQ. Amongst geographies, US (63.4% of revenue) outperformed with growth of
1.3% QoQ in CC. Further, Attrition declined to 16.3% vs 16.8% QoQ. Financial snapshot (Rs mn)
Q4 saw EBIT margin improvement 65bps QoQ to 20.9%, a 5-year high, vs. our Year FY2018 FY2019 FY2020 FY2021E FY2022E
forecast of a 45bps QoQ decline. This QoQ improvement was driven by INR Revenue 505,700 604,280 706,780 722,371 774,478
depreciation (+55bps) and productivity improvement (+20bps) which more than EBITDA 114,400 139,690 166,930 168,678 189,541
offset the impact of increase in amortization. A strong exit rate for EBIT margin EBITDA (%) 22.6 23.1 23.6 23.4 24.5
Adj. PAT 87,830 101,230 109,225 106,118 120,603
augurs well for HCLT’s ability to manage the headwinds from Covi-19 pandemic.
EPS (Rs) 31.5 37.3 40.2 39.1 44.4
Stability in Q2FY21 and pick-up in revenue from Q3 onwards
EPS Growth (%) 5.4 18.3 7.9 (2.8) 13.6
Unless for a resurgence in Covid-19 infections, HCLT expects the worst of the impact
PE (x) 16.2 13.7 12.7 13.1 11.5
to be over in Q1FY21. Given the transformational deal wins in FY20 and ~12% YoY Dividend Yield (%) 0.8 0.8 1.2 3.9 5.9
increase in order-book, on comparable basis, HCLT expects stability in Q2FY21 and EV/EBITDA (x) 11.6 9.4 7.9 8.2 6.6
pick-up in growth from Q3 onwards. On a medium term basis it expects digital RoE (%) 25.2 25.7 23.4 19.7 20.6
transformation initiatives of companies to accelerate from over a 2-3 year period RoCE (%) 27.7 27.9 26.2 22.7 24.5
earlier to few quarters, this augurs well for IT services players like HCLT. Source: Company; IDBI Capital Research
Urmil Shah | urmil.shah@idbicapital.com | +91-22- 2217 1861 Jayalaxmi Gupta | jayalaxmi.gupta@idbicapital.com | +91-22- 2217 1842
May 8, 2020
HCL Technologies | Q4FY20 Result Review
EBIT margin improved by 65bps QoQ to EBITDA 47,200 44,700 5.6 35,970 31.2
20.9% vs, our forecast of -45bps QoQ. Depreciation & amortization 8,390 8,000 4.9 5,580 50.4
EBIT 38,810 36,700 5.7 30,390 27.7
Other income (130) 670 nm 1,520 (108.6)
PBT 38,680 37,370 3.5 31,910 21.2
Tax 7,070 6,910 2.3 6,150 15.0
Adjusted net profit 31,610 30,460 3.8 25,760 22.7
Minority interest 80 80 0.0 80 n.m.
Reported net profit 31,530 30,380 3.8 25,680 22.8
Diluted EPS (Rs) 11.6 11.2 3.7 9.5 22.7
As % of net revenue
Gross profit 38.3 36.5 34.8
SG&A 12.9 11.9 12.3
EBITDA 25.4 24.6 22.5
EBIT 20.9 20.2 19.0
Reported net profit 17.0 16.8 16.1
Tax rate 18.3 18.5 19.3
Source: Company; IDBI Capital Research
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HCL Technologies | Q4FY20 Result Review
3
HCL Technologies | Q4FY20 Result Review
(US$ mn)
2,000 2.3 3.0
2.1
2.0
1,500 0.8
1.0
2,055 2,099 2,202 2,278 2,364 2,486 2,543 0.0% 2,543
1,000 -
Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20
Revenue (LHS) QoQ Ch (%)
Source: Company; IDBI Capital Research
4
HCL Technologies | Q4FY20 Result Review
5
HCL Technologies | Q4FY20 Result Review
20.0
20.0 20.0 20.2 20.9
19.7 19.7 19.0
15.0 17.1
10.0
5.0
-
Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20
EBIT Margin
Source: Company; IDBI Capital Research
12.0 12.3
12.1
11.9 11.9
11.5
11.6
11.0
11.1
10.5
10.0
Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20
SG&A
Source: Company; IDBI Capital Research
6
HCL Technologies | Q4FY20 Result Review
1,000
800
600
(Rs)
400
200
Jul-15
Jul-18
Apr-15
Jun-16
Jun-19
Nov-15
Oct-16
Jan-17
May-17
Nov-18
Jan-20
May-20
Feb-16
Aug-17
Dec-17
Mar-18
Feb-19
Sep-19
10x 14x 18x 22x
Source: Company; IDBI Capital Research
7
HCL Technologies | Q4FY20 Result Review
Financial Summary
Profit & Loss Account (Rs mn) Cash Flow Statement (Rs mn)
Year-end: March FY19 FY20 FY21E FY22E Year-end: March FY19 FY20 FY21E FY22E
Net sales 604,280 706,780 722,371 774,478 Pre-tax profit 126,260 140,320 138,231 157,043
Growth (%) 19.5 17.0 2.2 7.2 Depreciation 21,480 28,400 32,541 35,166
Operating expenses (464,590) (539,850) (553,692) (584,937) Tax paid (24,810) (44,818) (31,793) (36,120)
EBITDA 139,690 166,930 168,678 189,541 Chg in working capital (9,743) 77,940 (64,675) 86,545
Growth (%) 15.3 7.9 (2.8) 13.6 Cash flow from financing (c) (19,881) (12,341) (54,273) (81,410)
Shares o/s (mn nos) 2,713 2,714 2,714 2,714 Net chg in cash (a+b+c) 14,729 2,190 (71,149) 127,067
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HCL Technologies | Q4FY20 Result Review
Net fixed assets 234,960 352,420 392,519 382,353 Adj. EPS (Rs) 37.3 40.2 39.1 44.4
Investments 350 770 770 770 Adj. EPS growth (%) 18.3 7.9 (2.8) 13.6
Other non-curr assets 44,673 66,700 53,436 57,290 EBITDA margin (%) 23.1 23.6 23.4 24.5
Current assets 300,720 386,000 334,481 471,567 Pre-tax margin (%) 20.9 19.9 19.1 20.3
Inventories 910 910 990 1,061 ROE (%) 25.7 23.4 19.7 20.6
Sundry Debtors 117,060 141,310 158,328 159,139 ROCE (%) 27.9 26.2 22.7 24.5
Book Value (Rs) 155 189 208 222 Dividend Yield (%) 0.8 1.2 3.9 5.9
Source: Company; IDBI Capital Research
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HCL Technologies | Q4FY20 Result Review
Notes
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HCL Technologies | Q4FY20 Result Review
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