HCL Tech Q1 net up 9.9% to Rs 3,214 cr on cloud, digital shift deals

Shiv Nadar to move on and take over as chairman emeritus and strategic advisor to the Board for five years. C Vijayakumar, president and CEO, named managing director

HCL Technologies' first quarter numbers were propelled by cloud and digital transformation deals. Net profit for the quarter at Rs 3,214 crore was up 9.9 per cent year-on-year and 8.5 per cent sequentially. Revenue for the quarter rose 12.5 per cent YoY to Rs 20,068 crore and 2.2 per cent sequentially.

The company also said Shiv Nadar will move on and take over the role of chairman emeritus and strategic advisor to the Board for five years. C Vijayakumar, president and CEO of the company, has been named its managing director.

In dollar terms the company reported revenue at $2.35 billion, a growth of 0.9 per cent sequentially. The revenue growth was slower compared to peers, as the company had some customer issues in Europe and softness in manufacturing vertical which was down 2 per cent sequentially. Products and platforms were down one per cent. The firm's net profit did not meet the consensus estimate of analysts tracked by Bloomberg at Rs 3,425 crore. It also missed Bloomberg's estimate on dollar revenue of $2,729 million.

“With the second wave of the Covid-19 pandemic across India, we remain sharply focused on protecting the wellbeing of our employees and their families. Extensive support services were provided to the families on a war footing, while our employees and clients rallied to support each other despite all odds. We posted 11.7 per cent YoY revenue growth in constant currency and 29 per cent YoY growth in Mode-2 services in constant currency headlined by Cloud and Digital transformation deals. We remain very confident of a good QoQ growth for the rest of this year,” said C Vijayakumar, Chief Executive Officer, HCL Technologies.

The TCV for Q1 was $1.67 billion a 37 per cent increases on y-o-y, much lower than the $3 billion reported in Q4. The company also said that Q4 is a seasonally stronger quarter and hence it see some largest TCVs signed then.

“HCL Tech came in below our expectations largely due to soft product business (-1% QoQ) and weakness in Public Services vertical (-3.4% QoQ).  We expect HCLT to report solid revenue recovery with 11.7% revenue CAGR over FY21-FY24E driven by consistent transformation deal wins, increasing focus on ER&D services and rising share of Mode 2 business. At CMP, the stock trades at 15.1x of FY24E EPS, which is 43-50% discount to larger peers Infosys and TCS against historical 22% discount,” said Suyog Kulkarni, senior research analyst at Reliance Securtities.

Growth for the quarter was driven by Engineering and R&D Services (4.3% sequential), lifescience and healthcare (5.4 per cent QoQ) and technology and services (1.6% QoQ). In terms of geography, US grew 2.6 per cent q-o-q and 13.5 per cent YoY and ROW was up 20 per cent YoY and 2.4 per cent QoQ.

Analysts tracking the sector and the company also said that the company had guided for a softer Q1. “They have been stateing at various forums that Q1 will be soft. Looks like they did not see that there would be delays in ramp up of some new deals. Compared to the other three players, Infosys was the best followed by Wipro this quarter,” said an analyst covering the sector on condition of anonymity.

Like peers, HCL Technologies reported a spike in attrition, which touched 14.6 per cent (LTM basis). Attrition was 9.9 per cent in Q4 FY21. The company added 7,500 people in Q1 of which 3,500 were freshers. It also said that for FY22 they would onboard 20,000-22,000 freshers from campuses.

“We have been ramping up our employee base. Between the Q4 and Q1 we have added 16,800 people to our employee base. Moreover we also added 3,000 from third party contractors,” said Apparao VV, CHRO, HCL Technologies.