HCL Technologies Ltd.

HCL Technologies Ltd.
Result Update: Q3 FY 12
C.M.P:
Target Price:
Date:
Rs. 509.20
Rs. 565.00
April. 25th 2012
BUY
SYNOPSIS
Stock Data:
Sector:
Face Value Rs.
52 wk. High/Low (Rs.)
Volume (2 wk. Avg.)
BSE Code
Market Cap (Rs in mn)
IT
2.00
528.40/360.10
38000
532281
346416.10
HCL is a $6.2 billion leading global
technology & IT enterprise comprising
two companies listed in India – HCL
Technologies and HCL Infosystems.
During the quarter, 52 new clients were
added by HCL Technologies Ltd.
During the quarter ended, the robust
growth of Net Sales is increased by
27.51% to Rs. 214647.20 million.
Share Holding Pattern
HCL and UPM have signed a five year
outsourcing frame agreement of IT
infrastructure services.
HCL signed an agreement with State
Street Bank & Trust Company (State
Street) to provide BPO services.
1 Year Comparative Graph
HCL has entered into a relationship with
GAIG to provide integrated IT services,
BPO & Infrastructure Mgt. Services.
HCL wins ICD 10 transformation deal
with Blue Shield of California.
HCL Technologies BSE SENSEX
Net Sales and PAT of the company are
expected to grow at a CAGR of 27% &
26% over 2010 to 2013E respectively.
Years
Net sales
EBITDA
Net Profit
EPS
P/E
FY 11
67944.80
16826.40
11982.80
17.40
28.91
FY 12E
89687.14
26001.17
17803.42
25.85
19.46
FY 13E
104037.08
30252.99
21005.01
30.50
16.49
1
Peer Group Comparison
CMP(Rs.)
Market Cap.
(Rs.mn.)
EPS(Rs.)
P/E(x)
P/Bv(x)
Dividend (%)
509.20
346416.10
17.40
28.91
5.91
375.00
1096.80
214668.00
53.99
20.31
11.02
1400.00
Wipro
427.00
104991.90
19.00
22.47
4.92
200.00
Infosys
2373.05
136267.65
147.50
16.09
4.13
1200.00
Name of the company
HCL Tech. Ltd
TCS
Investment Highlights
Q3 FY12 Results Update
HCL Technologies Ltd reported a rise in standalone net profit for the quarter
ended March 2012. During the quarter, the profit of the company rose 20.60% to
Rs. 4001.50 million from Rs. 3318.10 million in the same quarter previous year.
Net sales for the quarter rose 27.51% to Rs. 21647.20 million, while total income
for the quarter rose 26.54% to Rs. 21962.70 million, when compared with the
prior year period. Company posted earnings of Rs.5.78 a share during the
quarter, registering 19.45% growth over prior year period.
Quarterly Results - Standalone (Rs. in mn)
As At
Net sales
PAT
Basic EPS
2
Mar-12
Mar-11
%change
21647.20
16977.30
27.51%
4001.50
3318.10
20.60%
5.78
4.84
19.45%
Net Sales & PAT Growth
During the quarter, Net sales rose by 27.51% to Rs. 21647.20 million from
Rs.16977.30 million in the same quarter last year and the Total Profit for the
quarter ended March 2012 was Rs. 4001.50 million grew by 20.60% from
Rs.3318.10 million compared to same quarter last year.
EPS Growth
The basic EPS of the company stood at Rs. 5.78 for the quarter ended March
2012 from Rs. 4.84 for the quarter ended March 2011.
3
Break up of Expenditure
Segment Revenue
Declared Interim Dividend
HCL Technologies Ltd has declared an interim dividend of Rs.2/- per equity share
of face value of Rs. 2/- each of the Company.
4
HCL and Cisco launch South Africa Global Center of Excellence
HCL Technologies Ltd. (HCL) has strategically aligned with Cisco to announce the
opening of a South Africa Global Centre of Excellence (GCoE) in Johannesburg as
part
of
its
commitment
to
build
a
socially
responsible
business.
The
Johannesburg GCoE will serve as a local support center for HCL and Cisco’s
South African clients. It will also train local engineers on advanced Cisco
technologies to support clients across Africa and specifically South Africa. It will
also service clients by developing ICT skill sets thus ultimately creating trained
local personnel to deploy and manage advanced solutions.
HCL, Cisco announce Alignment around Vertical Solutions
HCL Technologies (HCL) and Cisco Systems, Inc. announced that they are jointly
creating vertical solutions. First of these solutions is targeted at the financial
services industry to improve the end-customer experience. It will also integrates
components from Cisco’s Borderless Networks, Collaboration & Data Center/
Virtualization portfolios & leverages HCL’s exception capabilities around industry
specific applications & sys integration capabilities around Cisco architectures.
UPM to outsource part of its IT services to HCL
UPM and HCL Technologies Limited (HCL) have signed a five year outsourcing
frame agreement of IT infrastructure services. As part of this agreement, HCL will
provide data center, end user support, network services and professional IT
services to UPM. HCL will also set up a data center in Finland and strengthen its
existing Espoo Delivery Center to provide the services.
HCL Technologies enters into strategic relationship with State Street
HCL Technologies Ltd. signed an agreement with State Street Bank and Trust
Company (State Street) to provide business process outsourcing services in
support of a variety of a variety of State Street’s investment services businesses.
The vision is to provide domain specific transaction processing BPO services to
leading clients in the Financial Services Vertical.
5
HCL wins ICD 10 transformation deal with Blue Shield of California
HCL Technologies announced that Blue Shield of California will leverage HCL’s
iCRM web based tool to complete its ICD 10 remediation to meet the compliance
deadline of October 2013. HCL’s Proprietary ICD 10 Transformation Framework
will help Blue Shield of California to transition people, processes, and technology
from ICD-9 to ICD-10. HCL’s ICD 10 Transition framework with built-in
proprietary tools, takes a comprehensive approach to assessment & remediation,
and automates a significant amount of the transition exercise to streamline
compliance efforts.
HCL Technologies enters into strategic relationship with GAIG
HCL Technologies has entered into a strategic relationship with Great American
Insurance Group (GAIG) to provide integrated IT services, Business Process
Outsourcing (BPO) and Infrastructure Management Services to GAIG and its
affiliates. The strategic alliance with GAIG significantly enhances capabilities and
helps to create a differentiated value proposition in the insurance industry,
especially in the commercial specialty sector, enabling them to target a wider
audience.
HCL Technologies awarded with Statoil
HCL
Technologies
announced
that
Statoil
has
selected
it
for
strategic
infrastructure management services. This deal win reinforces HCL’s dominance
in the Nordic region’s IT services market where it is already the global partner of
choice for several leading global corporations like Nokia, Danfoss and Electrolux
in the region. The company will also open a delivery centre in Stavanger, Norway
to service Statoil, in line with its model of Global Centers of Excellence. HCL will
deliver services across 36 countries handling the end to end monitoring and
management of Statoil’s entire The engagement includes managing Compute,
Storage, Database and Telecom (network & security) environments along with
desktop support.
6
Geographic Mix
Servicing Offering Mix (Q3 FY12)
7
Revenue by vertical (Q3 FY12)
Client Contribution to Revenue
8
Offshore/Onsite Revenue
9
Head Count
Company Profile
HCL Technologies Limited was originally incorporated on 12th November 1991, as
"HCL Overseas Limited". The Certificate of commencement of business was received
on 10th February, 1992. On July 14, 1994, the name of the Company was changed
to "HCL Consulting Limited". The Company changed its name to "HCL Technologies
Limited" on 6th October 1999 to better reflect the line of activities of the Company.
Today, HCL Technology is the fifth largest Indian company in IT services. HCL is a
$5.9 billion leading global technology and IT enterprise comprising two companies
listed in India – HCL Technologies and HCL Infosystems. HCL Tech. includes product
engineering, custom & package applications, BPO, IT infrastructure services, IT
hardware, systems integration, and distribution of information and communications
technology (ICT) products across a wide range of focused industry verticals. The
company’s BPO business is the third largest one in the country. The company
operates with clients mainly on technologies focused Transformation Outsourcing, in
areas that impact and re-define the core of client business. HCL Technologies has
global network of offices in 31 countries. The company is having around 27
subsidiaries located in different parts of the world and the total number of the clients
of the company exceeds to 70.
Company offerings
The different verticals that the company works are as follows:
10
•
Aerospace & Defense
•
Life Sciences and Healthcare
•
Automotive
•
Media & Entertainment
•
Capital Markets
•
Medical Devices
•
Consumer Electronics
•
Pharmaceutical
•
Financial Services
•
Retail & Corporate Banking
•
Government
•
Retail and Consumer
•
Healthcare
•
Telecom
•
Hitech Semiconductor Storage
•
Transportation
•
Insurance
•
Travel
Business Area
HCL Technologies Ltd.
IT Enable Services
(ITES)
IT Services
Core Software
IT
Infrastructure
BPO Services
Custom Applications
Contract
Management &
Front Office
Support
Engineering and R&D
Services
Back Office Process
Support
Enterprise Application
Solutions
Infrastructure and
Support Services
11
Partnerships
HCL has enhanced its relationships with partners and created a variety of innovative
partnership models, with various approaches to risk-reward sharing.
Product Partnership
Joint Venture
Strategic Alliances
Strategic Acquisitions
•
Axon group Plc.
•
Capital Stream, Inc.
•
Liberata Financial Services (LFS)
•
Control Point Solutions
12
Financial Results
12 Months Ended Profit & Loss Account (Standalone)
Value (Rs.in.mn)
FY10
FY11
FY12E
FY13E
Description
12m
12m
12m
12m
Net Sales
50787.60
67944.80
89687.14
104037.08
Other Income
1630.50
1662.70
1695.95
1746.83
Total Income
52418.10
69607.50
91383.09
105783.91
Expenditure
-37136.00
-52781.10
-65381.92
-75530.92
Operating Profit
15282.10
16826.40
26001.17
30252.99
Interest
-1013.60
-1013.90
-1044.32
-1075.65
Gross profit
14268.50
15812.50
24956.85
29177.35
Depreciation
-2740.30
-2913.70
-3350.76
-3685.83
Profit Before Tax
11528.20
12898.80
21606.10
25491.51
Tax
-962.40
-916.00
-3802.67
-4486.51
Profit After Tax
10565.80
11982.80
17803.42
21005.01
Equity capital
1357.60
1377.40
1377.40
1377.40
Reserves
47980.90
57204.10
75007.52
96012.53
Face value
2.00
2.00
2.00
2.00
EPS
15.57
17.40
25.85
30.50
13
Quarterly Ended Profit & Loss Account (Standalone)
Value(Rs.in.mn)
30-Sep-11
31-Dec-11
31-Mar-12
30-June-12E
Description
3m
3m
3m
3m
Net Sales
19792.20
21911.80
21647.20
24028.39
Other income
495.50
253.50
315.50
347.05
Total Income
20287.70
22165.30
21962.70
24375.44
Expenditure
-14481.70
-15075.90
-15849.30
-17564.75
Operating profit
5806.00
7089.40
6113.40
6810.69
Interest
-222.90
-221.40
-289.20
-297.88
Gross profit
5583.10
6868.00
5824.20
6512.81
Depreciation
-820.80
-862.60
-898.40
-970.27
Profit Before Tax
4762.30
6005.40
4925.80
5542.54
Tax
-786.80
-1065.70
-924.30
-931.15
Profit After Tax
3975.50
4939.70
4001.50
4611.39
Equity capital
1379.60
1381.50
1384.70
1384.70
Face value
2.00
2.00
2.00
2.00
EPS
5.76
7.15
5.78
6.66
14
Key Ratios
Particulars
FY10
FY11
FY12E
FY13E
No. of Shares (in mn)
678.80
688.70
688.70
688.70
EBITDA Margin (%)
30.09%
24.76%
28.99%
29.08%
PBT Margin (%)
22.70%
18.98%
24.09%
24.50%
PAT Margin (%)
20.80%
17.64%
19.85%
20.19%
32.32
28.91
19.46
16.49
ROE (%)
21.41%
20.45%
23.31%
21.57%
ROCE (%)
28.47%
28.66%
33.66%
31.21%
0.28
0.18
0.14
0.12
EV/EBITDA (x)
22.34
20.59
13.32
11.45
Book Value (Rs.)
72.68
85.06
110.91
141.41
6.92
5.91
4.54
3.56
P/E Ratio (x)
Debt Equity Ratio
P/BV
Charts:
Net Sales & PAT:
15
P/E Ratio(x):
Debt Equity Ratio:
16
EV/EBITDA(x):
P/BV:
17
Outlook and Conclusion
At the current market price of Rs. 509.20, the stock is trading at 19.46 x FY12E
and 16.49 x FY13E respectively.
Earning per share (EPS) of the company for the earnings for FY12E and FY13E
is seen at Rs. 25.85 and Rs. 30.50 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 27% and
26% over 2010 to 2013E respectively.
On the basis of EV/EBITDA, the stock trades at 13.32 x for FY12E and 11.45 x
for FY13E.
Price to Book Value of the stock is expected to be at 4.54 x and 3.56 x
respectively for FY12E and FY13E.
We expect that the company will keep its growth story in the coming quarters
also. We recommend ‘BUY’ in this particular scrip with a target price of
Rs.565.00 for Medium to Long term investment.
Industry Overview
India's Information technology (IT) and information technology enabled services (ITeS)
segments are aligned in a way that the growth in one avenue has ripple effects on
another. The IT & ITeS industry, as a whole, is the mainstay of Indian technology
sector as it has driven growth of the economy in terms of employment, revenue
generation, standards of living etc and has played a major part in placing the country
on the global canvas.
National Association of Software and Services Companies (Nasscom) president Som
Mittal believes that software exports would be in tune with the estimates and are
projected to grow 15-17 per cent to generate about US$ 70 billion in 2011-12 as
against US$ 59 billion in 2010-11.
Furthermore, Internet and Mobile Association of India (IAMAI) has stated that internet
users in the country have crossed the 100-million mark (owing to increasing internet
penetration and affordability for personal computers (PCs), of which 17 million are
18
online shoppers. It estimates that the number of Internet users in India will triple by
2015.
Rural India Calling
Rural business process outsourcing (BPO) units account for over US$ 10 million
towards India's IT-BPO revenues. Many big IT-BPO companies in India are getting
attracted towards hinterlands due to availability of immense untapped talent and
lower costs. Attrition rates in rural areas are just about 3-5 per cent as against a high
of 50 per cent in urban BPOs. Employee costs in rural BPOs is almost half as against
that of urban BPOs which bring overall operational costs down by almost 30-40 per
cent for IT companies. Nasscom has further stated that employee base in these areas
would expand by over 10 times by 2013-14 from 5000 in 2009-10.
Wipro BPO, the BPO arm of Wipro Technologies had launched its first rural BPO
centre at Manjakkudi Village in Tamil Nadu in August 2011. In October 2011, Infosys
BPO had inked an agreement with the Government of Andhra Pradesh to open rural
BPO centers in 22 districts. Rural Shores is another firm that had opened a BPO
centre in Bagepalli district of Karnataka and serves over 20 clients including HDFC,
Infosys, Wipro Technologies and Genpact. It aims to recruit more than 10, 000 youth
by 2014.
IT & ITeS - Key Developments and Investments
Between April 2000 and November 2011, the computer software and hardware sector
received cumulative foreign direct investment (FDI) of US$ 10.93 billion, according to
the Department of Industrial Policy and Promotion (DIPP).
•
Network equipment maker Cisco Systems Inc.'s Indian unit is vying for a bigger
share of the IT spending by small and medium enterprises (SMEs) in 14 nonmetro markets. The company is planning to increase the amount of investments
on its distribution network in the smaller cities in 2012. It has also intensified
its research activities in order to develop India-specific products that in some
cases may cost just 20 per cent of the global product.
19
•
California-based IT services company UST Global is expanding its footprints in
India's
IT
capital
Bengaluru.
The
company
already
operates
in
Thiruvananthapuram and Kochi in Kerala. In Thiruvananthapuram also, the
company is building a 3 million sq ft campus which would be a major hub for
offshore IT services offered by the company.
Online Retailing on a High
Emergence of internet retailing and e-commerce as a completely new space is driving
the growth of number of online shoppers. As a result, the internet retailing companies
are getting attracted towards Indian markets which are poised to grow leaps-andbounds in the years to come. There are about 17 million online shoppers in India and
the number is projected to grow over three times in the years to come.
•
Seattle-based world's largest internet retailer Amazon.com has recently
launched its website Junglee.com with a view to harness burgeoning online
shopping market in India which is expected to triple in size by 2015.
Junglee.com has partnered with several Indian online and offline retailers like
HomeShop18, Hidesign, Dabur Uveda, the Bombay Store and others. It has also
formed alliances with online players like Snapdeal, Univercell, Saholic (a Spice
Group firm) and Fommy.co.in.
•
India's largest and most-funded e-commerce company Flipkart Online Services
Pvt. Ltd has acquired Letsbuy.com, the country's second-largest online
electronics retailer, for an undisclosed amount. The move reflects Flipkart's
strategy of becoming a major player through acquisitions and eventually
grabbing a substantial pie of ever- increasing Indian online retailing space.
Cloud Computing – The Emerging Technology
Cloud computing is a set of services that provide infrastructure resources using
internet media and data storage on a third party server, that is, the subscriber (of
cloud service) does not need to own the infrastructure, which saves him from entailing
any capital expenditure and he pays to the service provider as per his usage.
20
The concept is on a high rage in India these days. The cloud solutions industry in
India is around US$ 400 million currently and by 2015 it is poised to grow 10 times to
US$ 4-4.5 billion. This further enhances the fact that Indian market is the most
mature when it comes to adoption of cloud technologies and has the highest usage
levels of converged systems.
•
The state of Gujarat has over 10 per cent of 3 million small and medium
enterprises (SMEs) present in India. Hitachi Data Systems is ready to launch its
cloud services for the SMEs in Gujarat as they are searching for data backup
and email management services along with data and business analysis by cloud
solutions providers.
•
Videocon and AEC Partners will jointly invest US$ 21 million in a cloudcomputing start-up called Nivio. The US$ 100 million-cloud computing
company will use these funds to expand its engineering centre in Palo Alto,
California and recruit fresh talent. AEC Partners is a US-based private equity
(PE) firm that holds expertise in technology investments.
Government Initiatives
Industry experts believe that increase in Government spends over e-governance
projects would be a major driver of growth for Indian IT/ITeS space. Nasscom has
stated that infrastructure for spends is ready and now is time when National eGovernance Plan (NeGP) should be executed in full force. NeGP aims to create the right
governance and institutional mechanisms, set up the core infrastructure and policies
and implement various Mission Mode Projects across the Centre, state and integrated
service levels to create a citizen-oriented and business-centric environment for
governance.
Meanwhile, the Government has recently announced that it would buy some 100,000
low-cost Aakash tablets from Datawind (the Canadian company that has developed
this device) and would distribute them to students in schools and colleges for free. The
move comes as an effort to facilitate e-learning.
21
In another similar effort, IT major Intel India had joined hands with the Karnataka
Government's Sarva Shiksha Abhiyan in 2011 and had launched ‘Computers on
Wheels'. It was a pilot e-learning program that entailed digital instruction materials
from reputed education solutions provider 'Educomp'. The program focussed to equip
teachers with learning techniques and tools and deliver diverse learning styles and
abilities to students, making education more participative rather than passive.
The Government of India has also undertaken a project that aims to provide high
quality broadband access to village Panchayats through National Optical fibre network
by 2014. The process is in progress and is projected to be very beneficial, especially for
the SMEs.
Software giant Infosys is planning to expand its footprint in India with focus on Tier-II
cities. The company has recently inked an agreement with Government of Madhya
Pradesh for setting up a development centre in Indore and is awaiting response from
Goverenment of West Bengal for setting up a centre in Kolkata as well.
All such developments and initiatives on part of the Government of India reflect the
fact that the supreme administration is making all the possible efforts to boost the
country's IT and ITeS industries.
IT & ITeS in India - Road Ahead
There are many predictions and forecasts pertaining to IT & ITeS in India across
various segments.
For instance, a study by management advisory firm Zinnov states that IT adoption in
Indian SME segment is growing at a rate of 15 per cent and would touch US$ 15
billion by 2015. The study noted that as of now, only 20 per cent of the total 50 million
SMEs in India are technology-ready today which poses an immense scope for further
growth.
Another study by consulting and advisory services firm CyberMedia Research suggests
that the PC market in India would have witnessed sales of 11.15 million units in the
22
2011 calendar year which would further accelerate by 14 per cent to 12.71 million
units in 2012.
Internet retailing is also emerging as an entirely new avenue to be explored. According
to estimates made by an industrial body, India's online retail industry is anticipated to
surge to Rs 70 billion (US$ 1.43 billion) by 2015 from Rs 20 billion (US$ 405.93
million) as broadband is becoming increasingly accessible and internet penetration is
increasing. Another report by Avendus Capital Pvt. Ltd states that e-tailing would
become a Rs 53,000 crore (US$ 10.76 billion) market by 2015 from the current Rs
3,600 crore (US$ 731 million).
________________
____
_________________________
Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s
affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.
23
Firstcall India Equity Research: Email – info@firstcallindia.com
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Pharma
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