HCL Tech - Q2FY12 Results Update_Jaypee Capital

7/28/2019 HCL Tech - Q2FY12 Results Update_Jaypee Capital

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2/16

HCLTechnologiesLimited17January2012

Jaypee Research De

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www.jaypeeusa.com

Service offerings:

Research & Advisory Execution Corporate Access & Events

Revenue growth has been flat this

quarter in $ terms however `depreciation has increased

profitability

Revenuehasbeenonconsistentrisesincepastsixquarters:

[Source:Company,JaypeeResearch]

$737.6

$803.8

$864.1 $914.5

$962.9$1,002.2$1,021.97.6%

9.0%7.5%

5.8%5.3%

4.1%

2.0%

0%

2%

4%

6%

8%

10%

$500

$600

$700

$800

$900

$1,000

$1,100

Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12

QoQ

growth

Revenue($mn)

$ Revenue

Revenue QoQ Gr.

34,254

37,08138,884

41,38242,995

11%

8%

5%

6%

4%

8%

13%

0%

2%

4%

6%

8%

10%

12%

14%

20,000

24,000

28,000

32,000

36,000

40,000

44,000


QoQgrowth

Re

venue(

mn)

` Revenue

Revenue QoQ Gr.


3/16


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Net Profit has however shown a

growth of 15%QoQprimarily due to

rupeedepreciation

Healthcare&

Life

sciences

vertical

has

shownthestrongestgrowthof100bps

QoQ, also, verticals like BFSI,

Manufacturing & Retail showed

marginalgrowth..

NetProfitgrowthhasbeenvolatile:

[Source:Company,JaypeeResearch]OverallBusinessThetableillustratesrevenuebyindustryverticals:


3,418 3,311

3,9974,682

5,106 4,975

5,731

1%

3%

21%17%

9%

3%

15%

5%

0%

5%

10%

15%

20%

25%

100

1,100

2,100

3,100

4,100

5,100

6,100

Q4FY10Q1FY11Q2FY11Q3FY11Q4FY11Q1FY12Q2FY12

NetProfitGrowth

NetProfit(

mn)

` NetProfit

NetProfit QoQ Gr.

%Revenuebyindustryvertical Q2FY12 Q1FY12 Q2FY11 QoQ (bps) YoY(bps)

Financial

Services 25% 25.1% 24.7% 20 60

Manufacturing 30% 29.0% 27.1% 50 240

Telecom 8% 8.5% 10.3% 50 230

Retail&CPG 9% 8.5% 8.7% 30 10

MediaPublishing&Entertainment 6% 6.8% 6.6% 40 20

Healthcare&LifeSciences 9% 7.6% 8.0% 100 60

EnergyUtilitiesPublicSector 6% 8.0% 7.3% 160 90

Others 7% 6.6% 5.6% 30 130

Revenuebyindustryvertical(Rsmn) Q2FY12 Q1FY12 Q2FY11 QoQ YoY

FinancialServices 13,271 11675 9604.5 14% 38%

Manufacturing 15,474 13489 10537.7 15% 47%

Telecom 4,196 3954 4199.5 6% 0%

Retail&CPG 4,616 3954 3577.4 17% 29%

Media

Publishing

&

Entertainment 3,357

3163 2644.1 6% 27%

Healthcare&LifeSciences 4,511 3535 3266.3 28% 38%

EnergyUtilitiesPublicSector 3,357 3721 2799.7 10% 20%

Others 3,619 3070 2255.3 18% 60%


4/16


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Service offerings:


InfraManagementservicewitnessed

degrowththisquarter.HoweverCAS

showedagrowthof100bps,while

otherservicelinesshowedmarginal

improvement.

USremains

the

key

geography,

though

Emerging Markets (ROW) was the

fastest growing it has shown a de

growthof310bps.

Maximum growth is witnessed in manufacturing and healthcare and utilities

verticals.

Thefollowingtableillustratesrevenuebyserviceofferings:

[Source:Company,JaypeeResearch]Thecompany iswitnessingmaximumgrowth inEASandcustomapplications

whichareofADMinnature.BPOkeepsshrinking,thoughitisstabilizing.

Thefollowingtableillustratesrevenuebyvariousgeographies:


%RevenuebyServiceOffering Q2FY12 Q1FY12 Q2 FY1 1 QoQ (bps) YoY(bps)

Enterpriseapplicationsservices 20% 19.8% 21.3% 50 100

EngineeringandR&Dservices 19% 18.6% 18.5% 30 40

Customapplications(industrysolutions) 33% 32.4% 31.8% 40 100

InfrastructureManagementservices 23% 24.6% 22.8% 120 60

BPOservices 5% 4.6% 5.6% 10 110

RevenuebyServiceOffering(Rsmn) Q2FY12 Q1FY12 Q2FY11 QoQ YoY

Enterpriseapplicationsservices 10648 9209 8282 16% 29%

EngineeringandR&Dservices 9914 8651 7194 15% 38%

Customapplications(industrysolutions) 17205 15070 12365 14% 39%

InfrastructureManagement

services 12274 11442 8866 7% 38%

BPOservices 2360 2140 2178 10% 8%

%Revenuebygeography Q2FY12 Q1FY12 Q2FY11 QoQ(bps) YoY(bps) Americas 59% 55.8% 57.1% 300 170

Europe 27% 26.6% 26.6% 20 20

RestoftheWorld 14% 17.5% 16.3% 310 190

Revenuebygeography Q2FY12 Q1FY12 Q2FY11 QoQ YoY Americas 30843 25954 22203 19% 39%

Europe 14058 12372 10343 14% 36%

RestoftheWorld 7553 8140 6338 7% 19%


5/16


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Service offerings:


Softwareserviceshavegrownby19%

YoY

Infrastructure Management has

grownby21%YoY

BusinessAnalysisSoftwareServices

[Source:Company,JaypeeResearch]Software Services business, which contributes 72% to the topline, keeps on

growing,especially inpastfourquarters,whereYoYgrowthhasbeengrowing

everyquarter.Q2FY12sawsoftwareservicesgrowby19%YoYand4%QoQ.

InfraServices


$526.8

$575.7

$617.7$650.9

$679.0$709.4

$736.4

9%

9% 7%5% 4%

4% 4%

19%

28%

34%

35%

29%23%

19%

0%

5%

10%

15%

20%

25%

30%

35%

40%

$400

$450

$500

$550

$600

$650

$700

$750

$800

Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12SoftwareServicesRevenue($mn)

SoftwareServicesRevenue

Revenue QoQ Gr. YoYGr.

$165.3$180.0

$196.9$213.7

$236.2 $246.3 $239.1

9% 9% 9% 9%11%

4%

3%

54%47%

49%

41%43% 37%

21%

10%

0%

10%

20%

30%

40%

50%

60%

$0

$50

$100

$150

$200

$250

$300

Q4

FY10

Q1

FY11

Q2

FY11

Q3

FY11

Q4

FY11

Q1

FY12

Q2

FY12

RevenueGrowth

Infr

aServicesRevenue($mn)

InfraServicesRevenue



6/16


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Service offerings:


BPOisstilllaggingandhasdeclinedby

6%thisquarteronaYoYbasis

Infra Management service line has shown a degrowth this quarter primarily

duetorupeedepreciationwhichaffectedcontractssignedinIndia

BPOServices

[Source:Company,JaypeeResearch]The BPO business keeps on lagging. The company maintains that the

investmentswhich it isdoing in theBPObusinesswillstartshowing resultby

quarterending

March

12.

$45.5

$48.1

$49.5 $49.8$47.7

$46.5 $46.4

22%

18 %

14%

4%

5%

3%

6%

25%

20%

15%

10%

5%

0%

5%

10%

$0

$10

$20

$30

$40

$50

$60


BPOServicesRevenue($mn)

BPORevenue



7/16


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Service offerings:


As seen in the charts, contribution of

Infra

Management

to

revenuealthough consistently increasing has

shown a decline this quarter, while

BPO is dropping. Similar trend is

witnessed in contribution to EBITDA

and EBIT, where BPO contribution is

negative,asitsmarginsarenegative.

Letsanalyzerevenueandprofitcontributionofvariousbusinesses:

71% 72 % 71% 71 % 71% 71 % 72 %

22% 22 % 23% 23 % 25% 25 % 23%

6% 6% 6% 5% 5% 5% 5%

0%

20%

40%

60%

80%

100%

Q4 FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12Revenuebybusinesssegments

RevenueContribution

Software Se rv. InfraServ. BPO

81 % 79% 76% 75% 74% 74% 76 %

23 % 24 % 25 % 26 % 26 % 26 % 24 %

4% 3% 2% 1% 1% 0% 1%

20 %

0%

20 %

40 %

60 %

80 %

100%

Q4 FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12EBITDAb

ybusinesssegments

EBITDAContribution

SoftwareSe rv. Infr aServ. BPO


8/16


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Service offerings:


Margins have expanded in rupee

termsinQ2FY12

[Source:Company,JaypeeResearch]Software services is the most stable business,anda cashcow, whereas Infra

Managementwhichwaswitnessinggrowthhasshowndegrowththisquarter.

MarginsThefollowingchartillustratesconsolidatedmargins:

[Source:Company,JaypeeResearch]Margins have all expanded by approximately 150bps however PAT margins

haveincreasedmarginallyduetoforexloss.

84% 82% 79% 78% 77% 76% 79%

22% 25% 25% 25% 26% 26%24%

6% 7% 5% 3% 3% 2% 2%

20%

0%

20%

40%

60%

80%

100%


EBITbybusinesssegments

EBITContribution

SoftwareSe rv. Infr aServ. BPO

18.6%

16.3% 16.3%17.3%

18.5% 17.1% 18.5%

15.3%

12.9% 13.1%

14.4%15.5%

14.3%15.8%

10.0% 8.9%10.3%

11.3% 11.9%10.7%

10.9%

0%

5%

10%

15%

20%

Q4 FY10 Q 1FY11 Q 2FY11 Q 3FY11 Q 4FY11 Q 1FY12 Q2FY12

Margins

Margins

EBITDAMargin EBIT

Margin Net

Margin


9/16


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Service offerings:


Margins of all businesses other than

BPObusinesshave shownamarginal

increase



15%

10%

5%

0%

5%

10%

15%

20%

25%

Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12EBITDAmargins

EBITDAMarginsofbusinesses

ConsolidatedIT Software

Serv. Infra

Serv. #REF! BPO

20 %

15 %

10 %

5%

0%

5%

10 %

15 %

20 %

Q4FY10 Q 1FY11 Q 2FY11 Q 3FY11 Q 4FY11 Q 1FY12 Q 2FY12EBITma

rgins

EBITMargins

ConsolidatedIT SoftwareServ. InfraServ. BPO


10/16


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Service offerings:


Number

ofclients

is

consistently

improving.

ClientDetailsThe

following

table

illustrates

client

matrix:

[Source:Company,JaypeeResearch]Letsanalyzecontributionbytopclients:

[Source:Company,JaypeeResearch]Revenuecontributionbytop10clientsis60%whiletherevenuesfromthetop

mostclienthasremainedflatonQoQbasis.Top5andTop10clientsaredriving

growthduetocrosssellandupsellstrategiesemployedbythecompany.

ClientMetrics Q2FY12 Q1FY12 Q2FY11

ActiveClientRelationships 516 480 434

NewClientRelationships 57 66 46

$100mn+clients 3 1 1

$50mn+clients 9 9 7





$5mn+

clients 144 135 113

$1mn+clients 362 349 312

Top5clients 16% 15.3% 16.8%

Top10clients 24% 24.1% 25.6%

Top20clients 34% 34.2% 36.6%

Repeatbusiness(consolidated) 94% 94.9% 94.3%

Clientsaccountingfor>5%oftherevenue 1 1 1

Dayssalesoutstanding(DSO) 55 53 61

%Contribution Q2FY12 Q1FY12 Q2FY11 QoQ(bps) YoY(bps) Top5clients 0.158 15.3% 16.8% 50 100

Top10clients 0.242 24.1% 25.6% 10 140

Top20clients 0.339 34.2% 36.6% 30 270

Rev.Contribution Q2FY12 Q1FY12 Q2FY11 QoQ YoY Top5clients 8287.7521 7116.4 6532.596 16% 27%

Top10clients 12693.899 11209.4 9954.432 13% 28%

Top20clients 17781.949 15907.1 14231.73 12% 25%


11/16


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Service offerings:


We have a targetprice of `547 andmaintainourratingtoBUY.

EmployeeDetailsThe

company

had

the

headcount

of

56,624

in

software

services,

17,431

in

infra

servicesand11,021employees inBPOservicesbyendofQ2FY12.Grosshiring

figurewas7,804whilenethiring2,556forthequarter.

Utilizationremainedflatat69.6%,whileattritionreducedsignificantly.Attrition

inconsolidatedITserviceswasdownfrom15.9%inpreviousquarterto15.7%

whilethatinBPOwasalsodownfrom8.5%inpreviousquarterto6.1%.

Utilization remained relatively flat. However, attrition has reduced. Going

forwardweexpectutilizationandattritionbothtoremainflat.

ValuationWehavebuiltinthetaxrateof25%fromApril12,andhaveassumedtheUSD

`rateof49.5goingforward.

AtCMPof`425.4,thecompanyistradingat12.6xitsFY12Eearnings.Wevalue

HCLTechat14xitsFY13EEPSof`39.07toarriveatrevisedJune12targetprice

of`547.

WemaintainourBUYratingonthestock.

Ourinvestmenttheseshingesonfollowingarguments:

a) Thecompanyfeelsconfidentthatitcannotonlymaintaintheongoing

growthrate,butcanalsopreserve itsmargins.Itexudesconfidenceo

thecompanytoelevateitsmargins,whichcanhappenduetopresence

ofmarginleverslikelowutilization(thecompanyistryingtoreachthe

levelof75%frompresent70%levels),highSG&A(whichpresentlyisin

excessof15%ofSales),andhighinvestmentincapex/infrastructure.

b) The company is already paying tax @25%, and the incremental tax

whichtheyhave topay fromApril 12,whenSTPIbenefitends, isnot

much.Wehavebuilt25%taxrate.


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Service offerings:


ConsolidatedFinancials HCLTech

IncomeStatement BalanceSheet

Y/EJune(`mn) FY10 FY11 FY12E FY13E Y/EJune(` mn) FY10 FY11 FY12E FY13E

Revenue 125,650 160,342 210,420 243,144 Cashandcashequivalents 4,686 5,198 11,961 33,017

YoYGrowth 18.6% 27.6% 31.2% 15.6% AccountsReceivables 30,496 25,907 36,714 39,198DirectCost 81,957 109,140 142,484 163,457 Bankdeposits 11,913 10,785 10,041 10,041

SG&AExpenses 17,965 23,714 29,903 36,472 Investmentsecurities 7,820 6,426 108 108

EBITDA 25,728 27,488 38,033 43,216 OtherCurrentAssets 8,845 20,704 27,739 31,582

EBITDAMargin 20.5% 17.1% 18.1% 17.8% CurrentAssets 63,760 69,020 86,563 113,947Depreciation&amortization 5,009 4,974 5,288 5,796 PPE,net 18,486 22,165 26,119 28,323

EBIT(OperatingProfit) 20,719 22,514 32,745 37,420 Intangibleassets 43,122 41,878 47,521 47,521

EBITMargin 16.5% 14.0% 15.6% 15.4% Investments(longterm) 707 2,780 2,878 2,878Gain/(loss)fromforexhedging (4,757) (818) (1,437) (1,000) Othernoncurrentassets 9,640 10,392 11,607 11,607

Othernonoperatinginc./(exp.) (545) 257 326 NonCurrentAssets 71,955 77,215 88,125 90,329

PBT 15,417 21,953 31,634 36,420 TotalAssets 135,715 146,235 174,687 204,275

IncomeTaxes 2,404 4,854 7,971 9,105 CurrentLiabilities 31,329 33,763 40,397 43,574

Effectivetaxrate 15.6% 22.1% 25.2% 25.0% Longtermdebt 26,632 21,240 20,905 20,905MinorityInterest 12.0 1.0 3.0 0.0 Otherliabilities 7,386 6,887 9,163 10,433

Netincome 13,025 17,100 23,666 27,315 TotalLiabilities 65,347 61,890 70,466 74,912

YoYGrowth 2.0% 31.3% 38.4% 15.4% MinorityInterest Sharesoutstanding(mn) 689.5 696.4 699.2 699.2 Stockholders'equity 70,368 84,345 104,221 129,363

EPS(Rs)(FullyDiluted) 18.89 24.55 33.85 39.07 Totalliabilities&equity 135,715 146,235 174,687 204,275

DPS(Rs) 4.50 7.40 15.04 15.63 BVPS(Rs) 102.1 121.1 149.1 185.0

Cashflow FinancialRatios

Y/EJune(`mn) FY10 FY11 FY12E FY13E Y/EJune FY10 FY11 FY12E FY13ENetIncome 13,025 17,100 23,666 27,315 Profitability&Returnratios(%)

Depreciation&Amortization 3,894 4,974 5,040 5,796 Grossmargin 35% 32% 32% 33%

Changesinworkingcapital 1,380 (2,362) 2,917 2,453 EBITDAmargin 20% 17% 18% 18%

Otheroperatingcashflow (1,691) (357) 1,861 Netmargin 10% 11% 11% 11%

CashflowfromOperations 16,608 19,355 33,484 35,564 ROE 19% 20% 23% 21%

Capitalexpenditure (6,122) (7,782) (7,639) (8,000) ROA 10% 12% 14% 13%

(Inc.)/Dec.ininvestments (5,936) (43) 1,844 ROCE 13% 16% 19% 18%

Otherinvestingcashflow WorkingCapital&Liquidityratios

CashflowfromInvesting (12,059) (7,824) (5,795) (8,000) Receivables(days) 84 64 54 57

Issueofequity 1,035 581 206 Currentratio(x) 2.0 2.0 2.1 2.6

Issue/(repay)debt (3,302) (4,494) (877) Cashratio(x) 0.1 0.2 0.3 0.8

Dividendspaid+div.tax (3,099) (5,153) (10,518) (10,926) Turnover&Leverageratios(x)

Otherfinancing

cash

flow (180)

(63)

(23)

Gross

fixed

asset

turnover

1.8

2.1

2.5

2.7

CashflowfromFinancing (5,546) (9,130) (11,212) (10,926) DebttoEquityratio 0.4 0.3 0.2 0.2

Forextranslationeffect 404 568 (2,468) Valuationratios(x)

NetChangeincash&casheq (592) 2,970 14,009 16,638 EV/Sales 2.2 1.7 1.3 1.1

Beginningcash&casheq 2,042 1,450 4,420 18,429 EV/EBITDA 10.5 9.9 7.1 6.3

Closingcash&casheq 1,450 4,420 18,429 35,067 P/E 22.5 17.3 12.6 10.9

P/BV 4.2 3.5 2.9 2.3

[Source:Company,JaypeeResearchEstimates]


13/16


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LIFFE,

SGX,

TOCOM.

Jaypee

International

Inc.

is

also

amemberofFINRA,NFAandSIPCandisregulatedbySECandCFTCinUSA.JaypeeCapitalServicesLimitedisamemberof

USE,NSEandBSEand isregulatedbySEBI inIndia.IndianservicesareofferedthroughJaypeeCapitalServicesLimited

NotallservicesareavailablefromallJaypeeorganizationsorpersonnel.Kindlyconsultyourlocalofficefordetails.

RecommendationStructure:ABuyrecommendationimpliesanupsideof10%ormorefromthecurrentlevels.

ASellrecommendationimpliesadownsideof10%ormorefromthecurrentlevels.

ANeutralrecommendationimpliesanupside/downsideoflessthan10%fromthecurrentlevels.


16/16



www.jaypeeindia.com

www.jaypeeusa.com

Service Offerings:


Jaypee Offices Worldwide:

NewYork

150Broadway

Suite2200

NewYork,NY10038

+12125376271

[email protected]

Chicago

30SouthWackerDrive

Suite1700

Chicago,IL

60606

+13122545044

[email protected]

DelhiNCR

11thFloor,Building 9A

DLFCyberCity,PhaseIII

Gurgaon 122002,India

+911243075880

[email protected]

Mumbai

505,Arcadia

195,NarimanPoint,

Mumbai 400021,India

+912243542000

[email protected]

Singapore

2ShentonWay

#1002SGXCentre1

Singapore068804

+6564380095

[email protected]

HCL Tech - Q2FY12 Results Update_Jaypee Capital

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