HCL Technologies on April 22 reported a 25.6 percent sequential decline in consolidated profit to Rs 2,962 crore for the quarter ended March 2021, dented by wage hikes and a one-time bonus of over Rs 700 crore. Profit in the December quarter 2020 was at Rs 3,982 crore.
Revenue from operations during the quarter grew 1.8 percent to Rs 19,642 crore compared to Rs 19,302 crore in the previous quarter, while the revenue in dollar terms rose 3 percent sequentially to $2,696 million thereby, missing CNBC-TV18 poll estimates of 3.6 percent growth on a QoQ basis.
Here are the highlights from HCL Technologies' Q4 FY21 earnings call as compiled by Narnolia Financial Advisors:
The company paid a one-time bonus to employees in 4QFY21 amounting to around USD 100 million.
Management expects double-digit revenue growth in CC terms for FY22.
The c ompany's management is focusing on building a unique product and platform business validated by better-than-expected performance in FY21 through investments in sales teams and product engineering to be rewarded in the medium term.
EBIT margins are expected to be in the range of 19-21%, going ahead.
Special programs in place to enable hiring and grooming talent to address near-term demand led by increased offshoring.
Diversification of Offshore talent and delivery through additional options like Sri Lanka, Vietnam and Phillipines.
Establishment of delivery centre next to customer onshore- US / Continental Europe, Australia etc.
Management will hire more than 15,000 entry-level employees to be onboarded globally – India, US, Europe, Australia, Sri Lanka, Vietnam.
In 1QFY21, the growth was high, based on the acquisition of the seven products done by the management in June. However, apart from that the growth remains strong for FY21 on YoY basis for product and platform business.
Product impairment was done for one of the product under IP partnership. A charge of USD 16 million with an impact on margins of 16 bps on annual basis.
DWS acquisition was completed on 5th Jan-21 and the numbers are also consolidated this quarter.
Impact of recent changes in Tax law on Goodwill Amortization
In June 2019, HCL Tech has acquired certain software products from IBM and the resulted goodwill of USD $ 849 million was depreciated on WDV basis at 25% per annum as per the tax laws prevailing at the time of the transaction.
As per finance bill enacted in March 21, goodwill has been taken out of the purview of tax depreciation from 1st Apr-21 and the WDV value of the goodwill will now be considered as the cost of acquisition for computing capital gains at the time of its disposal in the future.
The goodwill was amortized and the management was taking the benefit so far as per the tax books are concern. However, from 1QFY22 onwards this will be removed with the retrospective effect.
In FY20, management has taken that benefit but from FY21 onwards the benefit will be write back which was availed by management in FY21.
Change in deferred tax- The change in tax law has triggered a requirement of reassessing the tax basis of goodwill.
Under US GAAP; there is no change in tax base and no additional accounting for deferred tax is required.
As per IND AS books; a USD 160 million which is a complete one-time non-cash kind of a DTL need to undertake in the books; which is not a liability payable to anybody at any point in time.
Issuer of the bond is a subsidiary company- HCL America under the Guarantor – HCL Tech.
On 10 March 2021, the company through its susbsidiary issued USD 500 million unsecured notes due 2026 for Rs 3656 crore. The notes bear interest at a rate of 1.375% per annum and will mature on 10 March 2026.
Interest on the notes will be paid semi-annually on 10 March and 10 September of each year, commencing from 10 September 2021.
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