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Services business grew strongly, with 5% CC QoQ. The P&P business declined due to seasonality, impact on margins due to supply-side challenges and investment | HCL Tech Q4FY22 Result & Conference Call Highlights

Services business grew strongly, with 5% CC QoQ. The P&P business declined due to seasonality, impact on margins due to supply-side challenges and investment | HCL Tech Q4FY22 Result & Conference Call Highlights

Published on 22 April 2022 .Views 53 .Comments 0
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  • Revenue growth at 1.1% QoQ (13.3% YoY) in CC terms. The services business fueled the growth momentum, with 5% CC QoQ. The P&P business declined by 24% CC QoQ due to seasonality.
  • Q4FY22 EBIT margin at 18% contracted by 110bps QoQ. Services business margin improved by 85bps (65bps due to recovery of seasonal leaves impact and 20bps on account of operational efficiencies), which was offset by a decline in the P&P (products and platforms) segment margin. FY22 EBIT margin of 18.9% was a little below the guided range of 19-21% and contracted by 250bps YoY. The decline was largely due to salary hikes, large-scale fresher hiring, scaling up of nearshore delivery capabilities, and investment in up-skilling and talent development.
  • 10 large deals were signed in Q4FY22 (6 in Services and 4 in products business). The pipeline continues to be strong and is broad-based across all dimensions with a good mix of large and small-sized deals. Management indicated that the size of deals is up by almost 20% over the pre-pandemic levels.
  • Strong client mining practices and focus on working closely with large enterprise IT spenders have resulted in strong client addition.
  • Verticals: Growth in the company’s top line was led by Telecom, which grew by 20.2% YoY in CC terms, owing to a surge in demand for 5G and telecom modernization programs. It launched 2 new 5G applications in Q4FY22 to help mobile network operators optimize client experience and reduce energy consumption. This was followed by Life Sciences & Healthcare, which grew by 18.5% YoY on the back of rapid growth in remote patient monitoring, which involves devices like BP monitors, pulse oximeters, etc. The manufacturing segment grew by 16.6% YoY with HCLT launching its new framework, Envision, to help next-generation enterprises by deploying cutting-edge solutions that drive innovation and boost cost efficiencies. The Financial Services vertical was steady with a YoY growth of 10.2% in CC terms.
  • ITBS (IT Business services) segment grows on the back of increasing digital demand which grew by 16.2% YoY in CC terms, led by strong demand for digital transformation (50% of ITBS is a digital business). Clients have been spending on several key transformation initiatives, including cloud adoption for better resilience, agility, and security, modernizing applications for the cloud, SaaS for experience and efficiency, or data modernization for deep insights from analytics using AI.
  • With 23.7% CC YoY growth, the ER&D segment continues to witness traction on the back of initiatives like 5G, Industry 4.0, etc. The recent acquisition of Star-schema will also strengthen data engineering capabilities and provide the ability to leverage solutions and talent in the European market. HCLT was ranked as the No.1 Engineering Services provider for the US by Zinnov in 2021.
  • Products business to be treated as a startup with a long-term success journey: P&P revenue declined by 24% QoQ CC (down 13.9% YoY CC) on account of seasonality and volatility induced in the business. It was indicated that there are 3 revenue streams forming the US$1.4bn business ~ subscription & support (67%), license sales (28%), and professional services sales (5%). HCLT’s endeavor is to convert as much of new license sales as possible into the subscription-based model to reduce fluctuations. However, it is a long-term business transformation and will take a few years. HCLT will start publishing subscriptions and support revenue going forward. A new long-term organization structure has been implemented for P&P business with two Institutional Equities 6 HCL Technologies senior HCLT leaders set to provide the rhythm and innovation to transform this business.
  • Net employee addition at 11,100 in Q4FY22 took the addition in FY22 to 39,900 (highest ever, up 115% YoY) and the milestone of 200,000 employees was achieved. 23,000 freshers were added in FY22 (50% increase YoY) and a target of 35,000 freshers has been set for FY23. A recruitment program called New-vistas was initiated, expanding to 4 new Tier-2 locations
  • FY23 guidance: revenue guidance of 12-14% YoY growth in CC terms. The company said that Q1FY23 will start on a soft note on a QoQ basis as some of the productivity-related promises made to certain clients will kick in. EBIT margin guidance of 18-20% was given taking into account salary hikes and inflation to a certain extent.
  • There are not much of CAPEX or acquisition plans going ahead
  • Negligible impact of the situation in Eastern Europe as well as in Sri Lanka: HCLT felt a nominal impact, majorly in the P&P business due to the Russia-Ukraine war as few clients of its products reside in the impacted geographies. HCLT has 2,000 employees working in Sri Lanka and has indicated a ‘business-as-usual’ environment with continued hiring along with some minor hiccups due to power supply issues. It is also ready to airlift its employees to Indian locations in case of any emergencies.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell stocks or MF.

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