Professional Documents
Culture Documents
HCL Technologies: Solid On All Counts
HCL Technologies: Solid On All Counts
19 JAN 2016
HCL Technologies
BUY
INDUSTRY
CMP (as on 19 Jan 2016)
Target Price
IT
Rs 839
Rs 990
Nifty
7,435
Sensex
24,480
HCLT IN
1,409
1,181/17,460
1,629
Rs 1,058 / 798
3M
6M
(2.3) (12.3)
8.3
1.7
12M
1.9
15.3
60.57
Public
39.43
Others
Source : BSE
Harit Shah
haritj.shah@hdfcsec.com
+91-22-6171-7325
Amit Chandra
amit.chandra@hdfcsec.com
+91-22-6171-7345
Financial Summary
(Rsmn)
Net Sales
Adj. EBIT
APAT
Diluted adj. EPS (Rs)
P/E (x)
EV / EBITDA (x)
RoE (%)
2QFY16
103,410
20,720
19,200
13.6
2QFY15
92,830
22,100
19,150
13.6
YoY (%)
11.4
(6.2)
0.3
0.2
1QFY16
100,970
19,570
17,260
12.2
QoQ (%)
2.4
5.9
11.2
11.3
FY15
370,610
82,490
72,540
51.4
16.3
12.2
32.4
FY16E
421,767
87,334
78,803
55.8
15.0
10.9
29.1
FY17E
473,445
98,606
88,572
62.7
13.4
9.3
27.9
FY18E
531,200
110,585
98,688
69.9
12.0
7.8
26.5
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
Particulars
Net Revenues (US $mn)
Net Revenues
Direct Costs
Gross Profit
SG&A Expenses
EBITDA
Depreciation
EBIT
Other Income
PBT
Tax
APAT
E/o (adj for tax)
RPAT
2QFY16
1,566
103,410
67,680
35,730
13,480
22,250
1,530
20,720
3,560
24,280
5,080
19,200
0
19,200
2QFY15
1,491
92,830
58,490
34,340
11,150
23,190
1,090
22,100
2,150
24,250
5,100
19,150
0
19,150
YoY (%)
5.1
11.4
15.7
4.0
20.9
(4.1)
40.4
(6.2)
65.6
0.1
(0.4)
0.3
0.3
1QFY16
1,545
100,970
67,420
33,550
12,630
20,920
1,350
19,570
2,410
21,980
4,720
17,260
0
17,260
QoQ (%)
1.4
2.4
0.4
6.5
6.7
6.4
13.3
5.9
47.7
10.5
7.6
11.2
11.2
2QFY16
65.4
34.6
13.0
21.5
20.0
20.9
18.6
2QFY15
63.0
37.0
12.0
25.0
23.8
21.0
20.6
YoY (bps)
244
(244)
102
(346)
(377)
(11)
(206)
1QFY16
66.8
33.2
12.5
20.7
19.4
21.5
17.1
QoQ (bps)
(132)
132
53
80
65
(55)
147
Margin Analysis
EBIT margin rose 65bps QoQ
to 20% aided by INR
depreciation and higher
utilisation. The company
maintained its EBIT margin
comfort band of 21-22%,
which implies strong margin
expansion in 2HFY16
Page | 2
(%, QoQ)
(%, YoY)
5.1
1.4
(0.0)
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
24
18
21
12
18
15
5.3
4.8
3.1
3.6
5.2
6.2
7.9
9.1
11.0
8.2
7.8
6.1
2.1
24
8.2
27
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
30
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
30
19.2
(%)
14.6
12.1
11.1
13.0
13.6
13.7
14.1
14.5
14.3
14.6
12.8
12.8
9.5
9.3
7.7
3.2
14
0.5
2.5
3.0
3.2
3.6
3.2
3.1
3.5
4.0
3.0
3.4
4.0
1.9
2.0
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
21
14.8
12.5
18.3
Page | 3
(% of rev)
Financial Services
Manufacturing
Telecom, Media, Publishing & Entertainment
Retail & CPG
Life Sciences and Healthcare
Public Services
Others
Total
4QFY14
28.4
31.6
8.9
8.5
10.2
10.1
2.3
100.0
1QFY15
28.2
32.3
8.7
9.5
9.8
9.3
2.2
100.0
2QFY15
26.6
32.9
8.4
9.7
11.1
9.5
1.8
100.0
3QFY15
26.1
33.4
9.0
8.4
11.2
10.4
1.5
100.0
4QFY15
26.0
32.7
9.5
8.8
12.0
9.7
1.3
100.0
1QFY16
26.1
32.5
9.6
8.8
12.4
10.0
0.6
100.0
2QFY16
25.9
31.5
9.7
9.5
12.2
10.6
0.6
100.0
4QFY14
9.1
(1.9)
9.5
3.4
1.4
3.4
3.4
3.4
1QFY15
1.2
4.1
(0.4)
13.9
(2.1)
(6.2)
(2.5)
1.9
2QFY15
(1.9)
5.9
0.4
6.2
17.8
6.2
(14.9)
4.0
3QFY15
(1.9)
1.5
7.1
(13.4)
0.9
9.5
(16.7)
(0.0)
4QFY15
2.8
1.0
8.9
8.1
10.5
(3.8)
(10.6)
3.2
1QFY16
0.8
(0.2)
1.5
0.5
3.8
3.6
(53.6)
0.5
2QFY16
0.6
(1.7)
2.5
9.5
(0.2)
7.5
1.4
1.4
Page | 4
(% of rev)
Software Services (Apps + Engg)
Infrastructure Services
Business Services
Total
4QFY14
60.4
34.5
5.1
100.0
1QFY15
60.5
34.5
5.0
100.0
2QFY15
60.7
34.4
4.9
100.0
3QFY15
60.4
34.5
5.1
100.0
4QFY15
59.6
35.2
5.2
100.0
1QFY16
59.6
35.1
5.3
100.0
2QFY16
59.0
35.5
5.5
100.0
4QFY14
2.2
3.7
17.1
3.4
1QFY15
2.1
1.9
(0.1)
1.9
2QFY15
4.3
3.7
1.9
4.0
3QFY15
(0.5)
0.3
4.1
(0.0)
4QFY15
1.8
5.2
5.2
3.2
1QFY16
0.5
0.2
2.4
0.5
2QFY16
0.4
2.6
5.2
1.4
4QFY14
54.3
33.0
12.7
100.0
1QFY15
56.3
32.3
11.4
100.0
2QFY15
57.4
31.7
10.9
100.0
3QFY15
57.5
31.0
11.5
100.0
4QFY15
58.6
30.4
11.0
100.0
1QFY16
58.7
31.7
9.6
100.0
2QFY16
61.0
29.9
9.1
100.0
4QFY14
1.3
7.3
2.5
3.4
1QFY15
5.6
(0.3)
(8.5)
1.9
2QFY15
6.0
2.1
(0.6)
4.0
3QFY15
0.2
(2.2)
5.5
(0.0)
4QFY15
5.1
1.2
(1.3)
3.2
1QFY16
0.6
4.8
(12.3)
0.5
2QFY16
5.4
(4.4)
(3.9)
1.4
(QoQ, %)
Software Services (Apps + Engg)
Infrastructure Services
Business Services
Total
Source: Company, HDFC Sec Inst Research
(% of rev)
Americas
Europe
Rest of the World
Total
Source: Company, HDFC Sec Inst Research
Europe underperformed,
clocking a decline of 4.4%
QoQ (2.4% CC)
Page | 5
(Nos.)
Total headcount
Technical
Support
Gross additions
Net additions
Utilisation ex-trainees
expanded 110bps to 84.7%,
highest since 1QFY14
Key Assumptions
4QFY14
91,691
83,312
8,379
8,442
1,501
1QFY15
95,522
87,029
8,493
11,631
3,831
2QFY15
100,240
91,595
8,645
11,734
4,718
3QFY15
104,184
95,190
8,994
11,041
3,944
4QFY15
106,107
97,135
8,972
9,448
1,923
1QFY16
105,571
96,541
9,030
7,889
(536)
2QFY16
103,696
94,652
9,044
6,234
(1,875)
16.9
84.5
16.6
82.7
16.4
82.9
16.2
81.9
16.5
83.5
16.3
83.6
16.7
84.7
Particulars
Software services USD rev. growth (%)
IMS USD rev. growth (%)
BPO USD rev. growth (%)
Total USD revenue growth (%)
USD/INR rate
EBIT margin (%)
FY14
5.7
33.1
20.9
14.4
61.42
24.1
FY15
9.0
13.4
21.0
11.1
62.26
22.3
FY16E
4.0
11.0
22.5
7.4
66.00
20.7
FY17E
10.0
15.0
18.0
12.3
66.00
20.8
FY18E
10.0
15.0
16.0
12.2
66.00
20.8
Peer Valuation
Mcap CMP
(Rs bn) (Rs)
TCS
4,502 2,285
Infosys
2,619 1,140
Wipro
1,335
541
HCL Tech.
1,181
839
Tech Mahindra
496
513
Company
Reco.
NEU
BUY
NEU
BUY
NEU
EPS (Rs)
P/E (x)
RoE (%)
TP
(Rs) FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E
2,445 122.7 135.9 151.8 18.6
16.8
15.1 37.8
34.6
32.3
1,400
58.9
68.3
76.3 19.2
16.5
14.8 23.4
24.5
24.8
563
36.7
41.3
45.3 14.7
13.1
11.9 20.6
20.0
19.1
990
55.8
62.7
69.9 15.0
13.4
12.0 29.1
27.9
26.5
550
31.4
35.6
39.7 16.3
14.4
12.9 23.2
22.5
21.7
Page | 6
FY14
5,360
14.4
329,170
27.9
202,150
40,360
86,660
26.3
48.5
7,330
79,330
979
1,149
79,160
15,470
FY15
5,952
11.1
370,610
12.6
237,980
45,630
87,000
23.5
0.4
4,510
82,490
10,010
880
91,620
19,080
FY16E
6,390
7.4
421,767
13.8
275,609
52,721
93,438
22.2
7.4
6,103
87,334
11,959
791
98,503
19,701
FY17E
7,173
12.3
473,445
12.3
307,994
60,364
105,087
22.2
12.5
6,482
98,606
12,782
673
110,715
22,143
FY18E
8,048
12.2
531,200
12.2
344,819
69,056
117,326
22.1
11.6
6,740
110,585
13,283
508
123,360
24,672
63,687
63,687
55.4
45.1
55.4
72,540
72,540
13.9
51.4
13.9
78,803
78,803
8.6
55.8
8.6
88,572
88,572
12.4
62.7
12.4
98,688
98,688
11.4
69.9
11.4
FY14
FY15
FY16E
FY17E
FY18E
1,397
199,417
200,814
14,886
14,615
230,315
2,810
244,700
247,510
8,415
12,590
268,515
2,810
290,630
293,440
8,230
12,590
314,260
2,810
339,755
342,565
6,728
12,590
361,883
2,810
398,996
401,806
5,226
12,590
419,622
26,156
5,310
51,492
2,276
23,462
108,695
56,843
97,878
41,488
196,209
6,445
68,144
74,589
121,620
230,315
32,891
5,310
52,040
80
30,660
120,980
65,630
117,890
52,610
236,130
9,115
79,480
88,595
147,535
268,515
39,440
5,310
52,040
80
30,660
127,530
75,109
164,542
46,491
286,142
8,995
90,416
99,411
186,730
314,260
44,795
5,310
52,040
80
30,660
132,884
85,609
205,417
49,322
340,348
10,092
101,258
111,350
228,999
361,883
48,678
5,310
52,040
80
30,660
136,768
96,053
259,082
52,487
407,622
11,339
113,429
124,768
282,854
419,622
Page | 7
Key Ratios
FY14
79,160
(979)
1,149
7,330
974
(15,470)
72,164
(11,512)
60,652
(2,329)
979
(12,862)
5,933
(1,149)
65,436
8
(17,982)
(13,191)
46,111
2,398
97,878
FY15
91,620
(10,010)
880
4,510
(13,254)
(19,080)
54,666
(11,245)
43,421
(5,002)
10,010
(6,237)
(8,496)
(880)
34,045
1,412
(26,298)
(34,262)
14,167
5,845
117,890
FY16E
98,503
(11,974)
791
6,103
7,459
(19,701)
81,181
(12,653)
68,528
0
11,959
(694)
(185)
(791)
67,552
0
(32,873)
(33,848)
46,639
13
164,542
FY17E
110,715
(12,797)
673
6,482
(1,391)
(22,143)
81,538
(11,836)
69,702
0
12,782
946
(1,502)
(673)
67,527
0
(39,447)
(41,622)
40,863
13
205,417
FY18E
123,360
(13,298)
508
6,740
(188)
(24,672)
92,451
(10,624)
81,827
0
13,283
2,659
(1,502)
(508)
79,817
0
(39,447)
(41,457)
53,653
13
259,082
PROFITABILITY (%)
EBITDA Margin
APAT Margin
RoE
RoIC or Core RoCE
RoCE
EFFICIENCY
Tax Rate (%)
Fixed Asset Turnover (x)
Debtors (days)
Payables (days)
Cash Conversion Cycle
(days)
Net Debt/EBITDA (x)
Net Debt/Equity (x)
Interest Coverage (x)
PER SHARE DATA
EPS (Rs/sh)
CEPS (Rs/sh)
DPS (Rs/sh)
BV (Rs/sh)
VALUATION
P/E
P/BV
EV/EBITDA
OCF/EV (%)
FCF/EV (%)
FCFE/mkt cap (%)
Dividend Yield (%)
FY13
FY14
FY15
FY16E
FY17E
FY18E
22.7
15.9
32.8
22.0
28.2
26.3
19.3
37.1
30.8
34.8
23.5
19.6
32.4
27.3
27.7
22.2
18.7
29.1
28.0
25.1
22.2
18.7
27.9
29.5
24.2
22.1
18.6
26.5
31.0
23.4
23.0
4.1
63
9
19.5
4.5
63
10
20.8
4.4
65
12
20.0
4.3
65
10
20.0
4.3
66
10
20.0
4.4
66
10
55
53
53
55
56
56
(0.7)
(0.3)
48.8
(1.0)
(0.4)
69.1
(1.3)
(0.4)
93.7
(1.7)
(0.5)
110.5
(1.9)
(0.6)
146.5
(2.2)
(0.6)
217.7
29.0
33.4
12.0
101.3
45.1
49.8
22.0
142.3
51.4
54.1
16.0
175.3
55.8
59.6
20.0
207.9
62.7
66.8
24.0
242.7
69.9
74.1
24.0
284.6
28.9
8.3
19.5
4.4
3.5
2.2
1.4
18.6
5.9
12.5
6.6
5.5
5.6
2.6
16.3
4.8
12.2
5.1
4.1
2.9
1.9
15.0
4.0
10.9
7.9
6.7
5.7
2.4
13.4
3.5
9.3
8.3
7.1
5.7
2.9
12.0
2.9
7.8
10.0
8.9
6.8
2.9
Page | 8
RECOMMENDATION HISTORY
HCL Tech
1,200
Date
14-Jul-15
3-Aug-15
8-Oct-15
19-Oct-15
19-Jan-16
TP
1,100
1,000
CMP
961
937
846
857
839
Reco
BUY
BUY
BUY
BUY
BUY
Target
1,072
1,055
1,020
990
990
900
800
Jan-16
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
May-15
Apr-15
Mar-15
Feb-15
Jan-15
700
Rating Definitions
BUY
: Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL
: Where the stock is expected to deliver less than (-)10% returns over the next 12 month period
Page | 9
Disclosure:
We, Harit Shah, PGDBA & Amit Chandra, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our
views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in
this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its
Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further
Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock No
Disclaimer:
This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or
arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of
warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for
information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be
construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments.
This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any
locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HDFC
Securities Ltd or its affiliates to any registration or licensing requirement within such jurisdiction.
If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may
not be reproduced, distributed or published for any purposes without prior written approval of HDFC Securities Ltd .
Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived
from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk.
It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HDFC Securities Ltd may from time to time solicit from, or perform broking, or other services
for, any company mentioned in this mail and/or its attachments.
HDFC Securities and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies)
mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the
company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and
other related information and opinions.
HDFC Securities Ltd, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any
action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the
dividend or income, etc.
HDFC Securities Ltd and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report,
or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report.
HDFC Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any
other assignment in the past twelve months.
HDFC Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report
for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or
specific transaction in the normal course of business.
HDFC Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research
report. Accordingly, neither HDFC Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is
not based on any specific merchant banking, investment banking or brokerage service transactions. HDFC Securities may have issued other reports that are inconsistent with and reach
different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served
as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research
Report. HDFC Securities Ltd. is a SEBI Registered Research Analyst having registration no. INH000002475
HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,
Senapati Bapat Marg, Lower Parel, Mumbai - 400 013
Board : +91-22-6171-7330 www.hdfcsec.com
Page | 10