HCL Technologies Limited, commonly known as HCL Tech is an Indian multinational information technology (IT) services and consulting company headquartered in Noida. It emerged as an independent company in 1991 when HCL entered into the software services business.
The company is ranked amongst the top five Indian IT services companies in terms of revenues. HCL Tech has focused on transformational outsourcing, and offers an integrated portfolio of services including software-led IT solutions, remote infrastructure management, engineering and R&D services and BPO. The company leverages its extensive global offshore infrastructure and network of offices to provide multi-service delivery in key industry verticals.
The company has offices in 52 countries and over 210,966 employees. HCL Tech is on the Forbes Global 2000 list.
Quarterly Growth Walkthrough
HCL Tech has performed wonders in the third quarter due to strong seasonality of the IT sector. The growth was aided by its firm performance through services, superb rendition by software, refinement in margins, vigorous order booking and diminishing attrition. The company has acquired multiple vendor consolidation deals. Revenues have jumped up by 19.5 percent year on year to Rs 26,700 crore. Net profit after tax has soared by 18.8 percent to Rs 4,096 crore year on year.
| Particulars | Dec 2022 | Sep 2022 | Dec 2021 | QoQ | YoY |
| Revenues | 26,700 | 24,686 | 22,331 | 8.1% | 19.5% |
| Operating Profit | 6,365 | 5,425 | 5,393 | 17.3% | 18% |
| Net Profit | 4,096 | 3,487 | 3,448 | 17.5% | 18.8% |
| EPS | 15.09 | 12.86 | 12.68 | 17.3% | 19% |
The services business reported an adequate 2.2 percent sequential growth in constant currency in spite of the massive layoffs. The heavy 5 percent sequential growth in revenue for the firm was supported by a 30 percent growth in products.
Internationally, the European segment had outstanding performance which was aided by the commencement of a telecom deal; however, the American segment had a gloomy performance. The industry vertical performance was remarkably cheerful for manufacturing, media telecom, and life sciences. The BFSI (banking, financial services & insurance) was a burden due to layoffs and retail faced the macro pressure.
Improved Margins
The company’s margin has jumped by 165 basis points sequentially to 19.6 percent. The services margin has risen by 10 basis points sequentially to 17.7 percent in spite of a dual hike in wage and the seasonal weakness in revenue, although the products margin at 32.6 percent has been a pleasant surprise. The 155 basis points amongst the 165-basis-point improvement has come out through the products. Forex gains have given 70 bps, fresher billing have given 40 basis points, and realisation improvement have given 30 basis points. These gains were partly neutralized by the second phase of salary increment which made an effect of 70 basis points and furloughs & holidays depleted 60 basis points.
Mighty Order Booking
The macro challenges have not placed any repercussions on order booking or pipeline, which continues to be highly productive. HCL Tech has acquired 17 large deals (7 from services) in the third quarter with total contract value of new deals at $ 2347 million which is up by 10 percent YoY. The company is gaining multiple vendor consolidation deals and they are equipped to perform in cost reduction and cloud adoption projects. The company added clients across multiple revenue portfolios.
Dexterity in skill retention
HCL Tech has been concurrent with the overall trend in the IT industry. Attrition has seen a firm decline which is sequentially down to 21.7 percent from 23.8 percent on the past 12-month basis whereas quarterly annualised attrition has improved with the belief in the trend persist. Considering the positive outlook on the business no conspicuous changes were seen in the hiring plans.
HCL Tech stock price has taken support at the 50% retracement level twice, July and September in the past year. The stock price moved up to the 23.6% retracement level and was severely rejected in December 2022. The price has then taken strong support on the 38.2% retracement level and is presently making an up move. The 50% retracement level can be a good entry point for an entry into the IT giant as a large cap portfolio stock. Historically, the price of this stock rarely goes below the 200-day moving average and the 50% retracement level is adjacent to the moving average. Hence a correction down to this level is a great investment opportunity for the long term.
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