MOSL: HCL TECHNOLOGIES (Neutral)-Strong exit to facilitate improved organic growth
HCL Technologies: Strong exit to facilitate improved organic growth
(HCLT IN, Mkt Cap USD21.9b, CMP INR1132, TP INR1200, 6% Upside, Neutral)
- Strong exit on revenue, but margin misses estimate: For FY19, HCLT’s CC revenue/EBIT/PAT grew by 11.8%/22.0%/15.2% YoY. The company returned ~53% of net income to investors in the form of dividend and buyback. 4QFY19 CC revenue grew 15.3% YoY (our estimate: +15.1%), operating profit increased 18% YoY (our estimate: +21%) and PAT was up 15% YoY (our estimate: +16.3%). EBIT margin for the quarter shrank 60bp QoQ to 18.9%, below our estimate of 19.5%. Currency movement (40bp impact) and lower IP revenue (20bp impact) dragged profitability. PAT increased 15.3% YoY to INR25.7b, marginally below our estimate of INR25.9b.
- Low-margin Digital drove the revenue momentum
- Mode-1 revenue (70.5% of revenue) grew 2.5% QoQ CC, Mode-2 (19%) revenue increased by a sharp 14% QoQ, while Mode-3 revenue (10.6%) declined by 7.6% QoQ CC owing to seasonality. EBIT margin was flattish for Mode-1 (20.5% v/s 20.7% in 3Q), expanded for Mode-2 (13.1% v/s 12.3% in 3Q) and contracted for the operationally leveraged non-linear Mode-3 business (18.8% v/s 23% in 3Q).
- Among services, growth was led by IMS again (39% of revenue) (+7.3% QoQ CC). Engineering Services (24%) revenue declined 3% QoQ, dragged by IP seasonality. Application Services (33%) turned a corner, with growth of 5% QoQ and 8.4% YoY CC.
- Financial Services (21% of revenue) remains sluggish among verticals with growth of 0.9% QoQ CC. Europe (30% of revenue) drove growth among geographies, with revenue up 8.4% QoQ CC.
HCL Technologies is a global IT services company working with clients in the areas that impact and redefine the core of their businesses. Co. focuses on 'transformational outsourcing', underlined by innovation and value creation, offering an integrated portfolio of services including software-led IT solutions, remote infrastructure management, engineering and R&D services and Business services. Co. leverages its extensive global offshore infrastructure and network of offices in 31 countries to provide holistic, multi-service delivery in key industry verticals including Financial Services, Manufacturing, Consumer Services, Public Services and Healthcare & Life sciences.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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