HCL Tech (ACCUMUALTE, CMP Rs 891, and TP Rs 920) Jun’17 quarter results: Inline revenues; operating margins better than estimates; Guidance retained

Posted by: at 7/26/2017 10:39:00 pm

HCL Tech results were broadly inline with a 2.6% CC growth in revenues.  Revenue growth was broad based across service lines. The revenue guidance has been retained at 10.5%-12.5% in CC terms.  Company further invested about $140mn in the IBM IPR in the area of automation which would complement HCL’s Digital and Analytics offerings.  It has concluded the buyback program with investment of Rs35bn reducing the equity base by 2.5% but has reduced the cash dividend to Rs 2 per share for the quarter (vs Rs6 as interim dividend in previous fiscal). We maintain our positive view on HCLT and believe it would continue to deliver sector-leading growth over FY17-20E.  We currently have an Accumulate rating on the stock and may review our estimates post the earnings call today at 4:30pm +91 22 3938 1023.

HCL Tech Jun’17 quarter result highlights:

  • Revenues at US$ 1,884mn (+3.7% QoQ, +11.4% QoQ - terms tad lower than our expectations of 4.1% QoQ US$ revenue).  CC terms growth was at 2.6% for the quarter.
  • EBIT margins improve by ~10 bps sequentially to 20.1%, better compared for our estimate of decline of 80bps. 
  • Reported Profits at Rs  21.7bn (-6.3% QoQ, +6% YoY) better than our expectations of Rs21bn.

Operating metrics performance at a glance

Revenue performance across Business Units (in cc terms)

  • Application Services : 1.6% QoQ and  6.4% YoY
  • IMS: 1.7% QoQ and % 9.2% YoY
  • Engineering Services: 7.9% QoQ and 34.7% YoY
  • BPO: -6.7% QoQ  and -2.3% YoY

Manpower details

  • Manpower: 1,17,781 up 1,808  people QoQ
  • Blended Utilization: 86% up 30 bps QoQ
  • Attrition ( IT Services, LTM): 16.2% down 70 bps QoQ

Growth by Verticals (all in c.c terms)

  • Financial Services: 5.3%QQ
  • Manufacturing: 3.3%QQ
  • Healthcare: 4.8%QQ
  • Retail:  4.9% QQ  
  • Telecom & media: -2.5%
  • Public Services: -2.7%
 
Growth by Geographies (cc terms terms)

  • US:  3.8%QQ /16.9% YoY
  • Europe:-0.4 %QQ/0.3% YoY
  • ROW: 3.1% QQ/22.3% YoY

Growth by client metrics (US$ terms)

  • Top 5 :  1.6% QQ
  • Top 10: 5.1% QQ
  • Top 20 : 4% QQ

HCL Tech Jun’17 quarter result snapshot:
In Rs mn
Jun'17A
Mar'17
QoQ(%)
Jun'16
YoY (%)
Jun'17E
Net sales (US$ Mn)
            1,884
            1,817
3.7
         1,691
11.4
           1,891
Net sales (Rs. Mn)
       1,21,490
       1,20,530
0.8
    1,13,360
7.2
      1,22,020
Operating expenses
          94,680
          94,040
       88,150
         95,785
EBITDA
          26,810
          26,490
1.2
       25,210
6.3
         26,236
 Margins (%)
22.1
22.0
                   10
22.2
-20.0
21.5
Depreciation
            2,360
            2,330
         1,880
           2,797
EBIT
          24,450
          24,160
1.2
       23,330
4.8
         23,439
 Margins (%)
20.1
20.0
                  10
20.6
19.2
Other income
            2,690
            2,150
         2,530
           2,742
Pre-tax profit
27,140
26,310
3.2
25,860
26,181
Tax provided
5430
3030
5430
5177
Profit after tax
21,710
23,280
20,430
21,003
Emkay Net profit*
21,710
23,280
-6.7
20,430
6.3
21,003
EPS, Rs
15.3
16.5

14.5

14.8


Source: Company, Emkay Research.



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