SMC Global`s view on HCL Tech

SMC Global has come out with its report on HCL Tech.

Sequential Performance:

For the second quarter ended December 2011, consolidated revenues were up 13% to 5245.2 crore, with growth in US dollar terms at 2% to US$ 1022 million and the growth in constant currency terms was 3.7% to US$ 1038.9 million. IT services revenues grew 12.9% to 5006.9 crore out of which Software services grew 14.8% to 3779.7 crore and Infrastructure services revenues grew 7.4% to `1227.2 crore whereas BPO revenues was up 10.48% to 238.3 crore. Geography wise, US grew 7.3% and Europe 2.7% in dollar terms. Industry performance saw revenues growth from Retail& CPG and Healthcare sector by 5.5% and 15.9% respectively. EBIT margin from Software Services was up 190bps to 17.3%, Infrastructure Management services up 100bps to 16% but BPO remained negative at EBIT level. Overall operating margins improved by 140bps to 18.5% and the resultant operating profits were up 22% at 970.2 crore. Other income fell by 63% to 8.8 crore and depreciation/amortization charge for the quarter was up by 7% to 139.5 crore. Forex loss of 75.8 crore against 17.9 crore resulted in PBT after forex growth of 14% to 763.7 crore. Provision for tax was up 11% to 191.1 crore at effective tax rate of 25% which was down by 77bps. The resultant PAT increased by 15% to 572.6 crore and PAT margin rose by 24bps to 10.92%.

Corresponding Performance:

On corresponding basis, HCL registered 35% rise in consolidated revenues to 5245.2 crore Operating margins were up by 220bps to 18.5% partly on account of 145bps decline in direct costs to 67% of sales. The resultant operating profit grew 53% to 970.2 crore. Other income grew 63% to 8.8 crore. PBT before forex losses grew by 63% to 839.5 crore due to comparatively smaller 13% increase in depreciation/amortization charge to 139.5 crore. Forex losses shot up by 466% from 13.4 crore to 75.8 crore which restricted the PBT after forex growth to 52% to 763.7 crore. Tax provision jumped 85% to 191.1 crore with effective tax rate at 25%, up 452bps. The resultant net profit after share of equity investment & minority interest was up 43% to 572.6 crore with PAT margin higher by 64bps to 10.92%.

Other Development:

• HCL added 7804 employees at gross level and 2556 employees at net level during the quarter taking the employee strength to 83076.
• HCL added 57 new clients (66 q-o-q) during the quarter taking the total active clients to 516 clients (480 q-o-q).
• Revenues from top five clients was up 50bps to 15.8% (7.7% QoQ growth LTM), top ten clients revenue at 24.2%, up 10bps (4.9% QoQ growth LTM) and top twenty clients down 30bps to 33.9% (3.5% QoQ growth on LTM).
• Offshore revenue contribution was down 20bps to 42.1% and in terms of efforts - offshore was also down 20bps to 72.5%.
• Time & Material projects constituted 53.9% of revenues, down by 210bps and FPP 46.1%, up 210bps.
• Repeat business contributed to 94.4% of revenues, down 50bps.
• Off-shore utilization including trainees was down 10bps to 69.6% and onsite utilization was 95.9%, down 10bps.
• Cash, cash equivalents and investments stood at US$ 361.7 million.

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