HCL Tech Q3; Strong results aided by growth across core business verticals

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HCL Tech Q3

Profit beats estimates: HCL Tech has reported a 5.7% on quarter increase in its net profit to Rs 3,448 crore. On a yearly basis, net profit declined from Rs 3,977 crore from the last fiscal quarter. The analyst had earlier estimated a profit of Rs 3210 crore.

Robust revenue growth: HCL Tech’s revenue grew 7.6% sequentially to Rs 22,586 crore in constant currency terms. This is the highest growth in revenue terms in the last 12 years. Services business has grown at 5.3% QoQ in the December quarter. Engineering and R&D Services grew at a robust 8.3% QoQ (19.7% YoY) driven by traction in digital engineering and IoT Works. IT and Business Services grew at a healthy 4.7% QoQ (15.3% YoY), driven by an acceleration in cloud transformation and application modernization deals.

Margins: HCL Tech’s EBIT margin was at 19%, an increase of 7% sequentially. EBITDA margin stood at 23.4%, an increase of 6.8%. Net Income Margin for the quarter was 15.4% which was 40 bps higher, sequentially. Free Cash Flow (FCF) increased 33.7% QoQ at $521 million, 114% of Net Income. 

Strong Guidance: The company has kept its revenue and margin outlook unchanged for the current financial year. In the constant currency term, the company is expected to grow in double digits for FY22. The forecasted EBIT margin is between 19% and 21%.

HCL Tech Q3 Results Highlights:

New Contract and large deals: The company won new contracts worth US$ 2,135 million registering 64% YoY growth. On YoY basis, $50 mn+ clients are up by 11, $20 mn+ clients up by 13, $10 mn+ clients up by 25, and $5 mn+ clients up by 34, $1 mn+ clients up by 50.

Dividend: The company has declared a dividend of Rs 10 per share for Q3. This is the 76th consecutive quarter of dividend payout by the company. The company has decided to pay the dividend amount on 4 February 2022. The record date will be 22 January 2022.

Hiring and Iteration: The company has hired 10,143 professionals in the Q3FY22. The total headcount of the company now stands at 197,777. The attrition rate has increased from 15.7% in the last quarter to 19.8% for the quarter ended December.

Acquisition: Earlier on Friday, HCL announced that it has signed a definitive agreement for the acquisition of the leading Hungarian provider of data engineering services Starschema. The company said that the acquisition will bolster HCL’s capability in digital engineering and increase its presence in Central and Eastern Europe.

Management commentary: The company said, "We are in the disruption phase of our lives, and the world has been dramatically reshaped and transformed. Technology has become all pervasive, in our homes, and livelihoods, and is the epicenter of our lives. Our HCL family has been a catalyst in this change and is helping global enterprises embrace digital transformation, with a unique blend of products and services."

HCL Tech Q3 Results Review:

HCL witnessed strong growth across its core business verticals, healthy deal wins and better operational efficiencies which aided in the sequential growth of the business. Even though the December quarter is a seasonally weak one for IT companies, HCL Tech has seen strong booking performance during the period. The profit for Q3FY21 was higher by ₹438 crore due to reversal of a prior years’ tax provision due to change in the method of calculating a tax deduction, and the basis evaluation of judicial rulings. Excluding this, PAT for Q3FY22 is down 2.9% year-on-year.

Peers such as TCS, Infosys and Wipro also saw their revenue and net profit rise sequentially in the third quarter, but margin remained under pressure and attrition inched up. The share price closed 0.32% lower at Rs 1330 per share.