Modest sales growth but profits decline
In the
recent past, a number of very large and long-term software contracts have been
won by Indian software services companies. While this is a recognition of the fact that the sector has come of
age, it will also have a a big impact on profitability and valuation of
companies in the sector.
Indian software
companies are increasingly looking at large long-term contracts to ensure
improved capacity utilization even during downturns. However, in the long term,
such contracts enable better planning and manpower utilization and would
subsequently improve profitability as well as stock market valuation of these
companies. Among the companies who have won such large orders, is Noida-based
HCL Technologies.
HCL Technologies is the
fifth largest player in the Indian software services industry. The company
provides services in the area of embedded products, product development,
Internet, e-commerce and networking. It
provides software-led IT solutions, BPO, and remote infrastructure management
services across focused verticals, BFSI, insurance, networking, life sciences,
retail, telecom, transportation, utilities, travel including consumer,
aerospace, automotive, and semiconductor manufacturing. A wide array of services
that HCL Technologies provides include process consulting SCM, CRM, B2B, web
applications, mobile technology and applications, networking, application
production support etc. These offerings are strengthened through a set of
strategic alliances, joint ventures, acquisitions and subsidiaries that extend
the company's expertise and stretch its capability to additional areas.
FACT SHEET |
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mso-fareast-font-family:"Times New Roman";mso-ansi-language:EN-US;mso-fareast-language: EN-US;mso-bidi-language:AR-SA">Area of Specialization: Application led services, Technology led services, and Practice led services and ITES. |
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mso-fareast-font-family:"Times New Roman";mso-ansi-language:EN-US;mso-fareast-language: EN-US;mso-bidi-language:AR-SA">Revenues (March 2005): Rs 3315.6 crore |
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mso-fareast-font-family:"Times New Roman";mso-ansi-language:EN-US;mso-fareast-language: EN-US;mso-bidi-language:AR-SA">Offices: US, UK, Germany, Sweden, The Netherlands, Italy, Australia, New Zealand, Hong Kong, Malaysia, Japan and India |
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mso-fareast-font-family:"Times New Roman";mso-ansi-language:EN-US;mso-fareast-language: EN-US;mso-bidi-language:AR-SA">Listing (Stock Exchanges): BSE and NSE |
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mso-fareast-font-family:"Times New Roman";mso-ansi-language:EN-US;mso-fareast-language: EN-US;mso-bidi-language:AR-SA">Face Value: Rs 2 per share |
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mso-fareast-font-family:"Times New Roman";mso-ansi-language:EN-US;mso-fareast-language: EN-US;mso-bidi-language:AR-SA">Current Market Price: Rs 580 |
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mso-fareast-font-family:"Times New Roman";mso-ansi-language:EN-US;mso-fareast-language: EN-US;mso-bidi-language:AR-SA">52-Week High/Low: Rs 603/295 |
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mso-fareast-font-family:"Times New Roman";mso-ansi-language:EN-US;mso-fareast-language: EN-US;mso-bidi-language:AR-SA">BSE Code: 532281 |
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NSE Code: HCLTECH |
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Consolidated Financials |
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The company's
delivery centers are located in Noida, Gurgaon, Chennai, and Bangalore in India,
and globally in Belfast, Kuala Lumpur, Malaysia, and Northern Ireland. Its
customer list includes Boeing, IBM, AutoDesk, CISCO, KLA, G-TEC, Deutsche Bank
Group, and Jones Apparel. HCL Technologies current equity stands at Rs 64 crore
with promoters holding 70%, institutional investors 18.1%, the Indian public
2.5%, and others 9.3%.
The company reported a
healthy annual result for the financial year ended June 2005. HCL Technologies
earned a consolidated revenues of Rs 3322.9crore, registering a 27.2% growth
over the previous year's revenues of Rs 2,612.8 crore. The firm's net profit
for the same period was up 16.8% at Rs 646.3 crore, as against Rs
553.6 crore in the previous financial year.
During the
year under review, the company signed three large multi-year,
multi-services deals, each in excess of $50 mn. The firm won a business
transformational deal with a global bank to help it in the process of
application consolidation and application performance optimization to drive
higher performance at lower operational costs across the bank's IT
infrastructure. A $100 mn long-term
contract with a leading global telecom major, and a deal with a large global
software product company were the hallmarks during the fiscal.
HCL
Tech also entered into a joint venture with NEC
of Japan; a provider of Internet, broadband network, and enterprise
business solution; to form a new company NEC HCL System Technologies
with a base capital of $5 mn. NEC and
HCL will start their operations with a core team of 50 people, with the
leadership team led by CEO Anil Gupta, CTO Anup Dutta, and the Advisory
Committee with representation from the top management from each partner.
The company also set up a dedicated design center for Hamilton
Sundstrand, suppliers of advanced aerospace and industrial products.
HCL has a three-year relationship with Hamilton Sundstrand, having worked
on software verification and validation, mechanical engineering, and product
engineering.
During the first
quarter ended September 2005, HCL's
consolidated revenues grew 4.7% sequentially
at Rs 970.7 crore, as compared to Rs 927.6 crore.
the revenues were up 24.1% y-o-y at Rs 782 crore. Net profit for the same
period was Rs 166.6 crore, up 1.2% sequentially and down 10.3% y-o-y as compared
to Rs 164.7 crore and Rs 185.8
crore respectively. Revenues from the US and Europe amounted to Rs 348.2 crore
and Rs 57.2 crore, down 2% and 3% respectively, whereas revenues from Asia
Pacific Region was Rs 38.40 crore. Three new million-dollar clients were added
during the quarter under review.
EBITDA for the quarter
was 49%, as compared to 39.3% in the same quarter previous year, up 25%
y-o-y. The growth during the first quarter of FY 2005-06 was primarily driven
by the growth in the IT services business, which was up 5.1% during the quarter.
The onsite volume was up 162% during the quarter, while offshore declined 1.6%.
Revenues from the US increased 10.8% q-o-q,
while revenues from Europe declined 7.7% q-o-q.
The company has clarified that the decline in Europe and greater onsite growth
is due to the reclassification of revenue across service offerings, and is a
one-time occurrence. The company's manpower strength stood at 26,285, up 2,159
over the previous quarter.
During the quarter, the
IT services contributed 77% of the total revenue. The remaining
14% and 9% contribution came from BPO and infrastructure.
The growth prospects
for company are bright, given the strong growth in manpower and improved
outsourcing environment. We believe that growing deal sizes and new clients
would enable HCL to post
strong performance in the upcoming quarters. While the first quarter results of
FY 06 were not all that inspiring, we believe that subsequent quarters would be
better.
HCL is trading at Rs
580 discounting its projected June 2006 EPS by 23 times and June 2007 EPS by 19
times. Improving fortunes of its BPO and infrastructure services should keep the
company on an accelerated revenue growth path.
Marketperformer.