HCLTECHNSEApril 25, 2022

HCL Technologies Limited

7,981words
39turns
9analyst exchanges
13executives
Management on call
C. Vijayakumar
CHIEF EXECUTIVE OFFICER
Prateek Aggarwal
CHIEF FINANCIAL OFFICER
Apparao V V
CHIEF HUMAN RESOURCES OFFICER
Shrikanth Shetty
CHIEF GROWTH OFFICER, AMERICAS, LIFE SCIENCES AND HEALTHCARE INDUSTRIES
Anand Birje
PRESIDENT, DIGITAL BUSINESS SERVICES
Ankit Navin Jindal
HCL TECHNOLOGIES LIMITED
Ashish K Gupta
HCL TECHNOLOGIES LIMITED
Jagdeshwar Gattu
PRESIDENT, DIGITAL FOUNDATION SERVICES
Rahul Singh
PRESIDENT, FINANCIAL SERVICES AND DIGITAL PROCESS OPERATIONS
Roshni Nadar Malhotra
HCL TECHNOLOGIES LIMITED
Vijay Anand Guntur
PRESIDENT, ENGINEERING AND R&D SERVICES
Sanjay Mendiratta
HEAD, INVESTOR RELATIONS, HCL TECHNOLOGIES LIMITED
Apparao
- Chief Human Resource Officer along with the senior
Key numbers — 40 extracted
5%
t we have delivered yet another stellar quarter in our services business, where the revenue is up 5% quarter-on-quarter and up 17.5% year-on-year in constant currency. If you've been following us
17.5%
er stellar quarter in our services business, where the revenue is up 5% quarter-on-quarter and up 17.5% year-on-year in constant currency. If you've been following us over the last three quarters, our
rs,
up 17.5% year-on-year in constant currency. If you've been following us over the last three quarters, our services business has been consistently growing organically at more than 5%, delivering one of
12.7%
than 5%, delivering one of the highest CQGR in the industry. We posted a strong revenue growth of 12.7% in constant currency for the full year FY'22. Our services business grew 14.9% year-on-year, head
14.9%
revenue growth of 12.7% in constant currency for the full year FY'22. Our services business grew 14.9% year-on-year, headlined by our digital application services, engineering services and the cloud
1.1%
employees for their unwavering commitment and hard work all through the year. In Q4, we posted 1.1% sequential and 13.3% year-on-year growth in constant currency, led by a very strong continuing mo
13.3%
unwavering commitment and hard work all through the year. In Q4, we posted 1.1% sequential and 13.3% year-on-year growth in constant currency, led by a very strong continuing momentum in our service
3.7%
urrency, led by a very strong continuing momentum in our services business. Our net income growth 3.7% quarter-on-quarter and 18.3% year-on-year in dollar terms during this quarter. Of course, without
18.3%
g continuing momentum in our services business. Our net income growth 3.7% quarter-on-quarter and 18.3% year-on-year in dollar terms during this quarter. Of course, without the milestone bonus impact o
78.8 million
ear-on-year in dollar terms during this quarter. Of course, without the milestone bonus impact of 78.8 million in JFM '21. Our operating margin performance for this quarter was 17.9% and for full year it was
17.9%
ne bonus impact of 78.8 million in JFM '21. Our operating margin performance for this quarter was 17.9% and for full year it was 18.9%, coming in slightly below the low end of our guidance. This dip is
18.9%
in JFM '21. Our operating margin performance for this quarter was 17.9% and for full year it was 18.9%, coming in slightly below the low end of our guidance. This dip is largely due to th e talent mod
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Guidance — 20 items
C. Vijayakumar
opening
“Our operating margin performance for this quarter was 17.9% and for full year it was 18.9%, coming in slightly below the low end of our guidance.”
C. Vijayakumar
opening
“And this is also very critical for our medium-term growth.”
C. Vijayakumar
opening
“We are entering FY'23 with optimism and hope to continue to generate significant value to all our stakeholders across the board.”
Prateek Aggarwal
opening
“When I talk about ETR, going forward, this is an important note for you, as you make your models again.”
Prateek Aggarwal
opening
“122 crores, which as we had explained last year, which was a completely a non-cash charge, it is a liability sitting in the IND AS and IFRS now, in balance sheet, which is not really payable to anybody, but that is the charge we were forced to take as per whatever accounting guidance that we got.”
Sandeep Shah
qa
“Firstly, thanks for good payout starting with this year and hope this continues going forward.”
Sandeep Shah
qa
“Just the first question in terms of guidance, which is roughly 12% to 14% in constant currency.”
Sandeep Shah
qa
“Vijayakumar:: So we've given you a guidance for the whole business and we will stop at that.”
Sandeep Shah
qa
“Vijayakumar:: As an overall business, we've given you a very clear guidance.”
Sandeep Shah
qa
“So from an exit rate of 18% EBIT margin, is it fair to assume achieving a midpoint of the guidance is not out of reach?”
Risks & concerns — 11 flagged
Of course, without the milestone bonus impact of 78.8 million in JFM '21.
— C. Vijayakumar
We also see investments and initiatives in managing digital risk with continuous security and compliance.
— C. Vijayakumar
On the Products and Platform, it's seasonally a weak quarter for the business.
— C. Vijayakumar
This business continues to be volatile, and we continue to see good synergies between our services and product business.
— C. Vijayakumar
P&P on the other hand continue to be volatile.
— Prateek Aggarwal
In the recent quarters, you talked about that this segment is volatile.
— Kumar Rakesh
But on products, it's clearly been quite volatile.
— Ankur Rudra
So given it's been three years since the IBM deal, seems like almost half the period has been surprisingly volatile and the business does not display tangible signs of either sustainable growth or margins.
— Ankur Rudra
On Europe, you're seeing macro to be more volatile than last year.
— Gaurav Rateria
ban, what would be the impact of salary hike?
— Gaurav Rateria
So, that decline is somewhat in line with the industry, barring that 1% which we consciously invested.
— C. Vijayakumar
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Q&A — 9 exchanges
Q
Firstly, thanks for good payout starting with this year and hope this continues going forward. So congratulations. Just the first question in terms of guidance, which is roughly 12% to 14% in constant currency. If I'm not wrong, we may be building a higher growth in the services business versus products and platform. So if you can throw some light in terms of what are we making in terms of different segments? C. Vijayakumar:: So we've given you a guidance for the whole business and we will stop at that. We are not going to break up services, products, and things like that.
Sandeep Shah
But is it fair to say the growth outlook for products and platform maybe marginally going up or you still believe we do not have too much of visibility entering FY'23 for that segment? C. Vijayakumar:: As an overall business, we've given you a very clear guidance. It factors in the ups and downs in different parts of the world, different verticals, different segments. So, it's a model based on a number of factors and the pipeline win, the book that we have, all of that. So I cannot add anything more. Prateek, in terms of the margins, what I'm saying is, last year FY'22, you had 100 bps worth o
Q
My first question was in the prepared remarks CVK you talked about that the product and platform segment needs proactive investments. Can you please elaborate what kind of investments we are looking at, it's quantum and by when we are expecting the results of those investments coming around? C. Vijayakumar:: First of all, whatever investment that we plan to make, that is already part of our margin guidance. The second aspect, I will give you a little more flavor. We have a number of products, there are a few products which we have identified as products where we should invest to create the rig
Kumar Rakesh
This segment over the last couple of years barring FY'22 had seen very strong growth. In the recent quarters, you talked about that this segment is volatile. What essentially is driving that volatility and how do you see you're addressing that from leadership perspective? C. Vijayakumar:: The software product business is about $1.4 billion in size. The revenue comprises of three components. One, which is the largest components is the subscription and support revenue we get for the products. About 67% of the revenue comes from subscription and support services and about 5% comes from profession
Q
Thank you, CVK for the elaborated guidance and also improved payout. Just one quick clarification, was the payout this year one-off, Should investors look any change in your sustainable payout ratios going forward? C. Vijayakumar:: It's in line with our guidance of minimum of 75% of our net income. We haven't done any acquisitions, we don't intend to do any. So the obvious option was to pay out. As a strategy, capital allocation is a lot more tuned to payout at this point in time. And there is not too much of a CAPEX plan or there isn't any acquisition plan of any reasonable size. So we wanted
Ankur Rudra
Secondly, if I just look at the overall business especially in the last two years, clearly looks like the case of between products and services. Services seems to be an all-time high and grew on last decade or so. But on products, it's clearly been quite volatile. So given it's been three years since the IBM deal, seems like almost half the period has been surprisingly volatile and the business does not display tangible signs of either sustainable growth or margins. How are you thinking about this now – do you think it's still calling a startup, or are you thinking about rationalizing this goi
Q
I had two questions. So, one was on the Products business, historically, you have mentioned that 75% of the business is sort of going low-double digit, 25% is sort of declining high-double digit. So, when you sort of overlay that with what you have explained today, how would you visualize this business on a going forward basis, in terms of the pain points that you're trying to tackle? So, just to summarize, do you think that the declining businesses should sort of fizzle away in two years and the growth business really should take over maybe in a year or two? So, that's one. The second is by w
C. Vijayakumar
So, I think the product mix assumptions that we had, and the way we expect it to play out remains the same Nitin. Obviously, there is again, in both the segments, there is a subscription and services revenue, and product license revenue. So, depending on the new product sales, things can fluctuate quite a bit, but as time passes, this should get evened out, as we are really transforming this business model turn from an on-prem, one-time software sale to more of a subscription based and SaaS based solution, that is the response. On the organization structure, we have already implemented a new o
Q
Thank you, gentlemen congratulations on really strong performances on the services side, I have one suggestion, that is, if you could disclose the geography and vertical segments just for services, and maybe separately for products that will help us see the actual impact because when in a quarter like this, where there was revenue decline, it's difficult to make out how this was performed at an individual geography or vertical? You talked about the products being a startup, and just want your sense on, if you were to think about it, all established HCL as you got a license to play. Now, should
C. Vijayakumar
Yeah, so Ravi, first one good suggestion, we will look at it and come back. Obviously, in a quarter like this, you are not able to figure out which vertical is firing on the services side and which is not. But I think the year-on-year trend should give you a reasonable visibility. In terms of the long term, yes, it is. It is like a startup now. Definitely, we are also bringing together all the software product businesses, which were operating like separate business groups, while HCL Software was the biggest division, we had Actian, we have DRYiCE, we have Industry Software Group. So, in the ne
Q
Two questions. First, for CVK. On Europe, you're seeing macro to be more volatile than last year. But whereas when we look at your deal flow, a lot of the large deal wins have been announced actually in Europe. So, what are you seeing on the ground in terms of deal pipeline, decision making cycle and conversion trends. Second question is for Prateek in terms of 18% to 20%. ban, what would be the impact of salary hike? Will it be similar to last year and what will be some of the offsets? Will pricing be acting as a tailwind this year? Thank you.
C. Vijayakumar
Yeah, on the deal flows, it seems like it's in proportion to our overall business. Of course, 60% is from North America, or 28%-odd from Europe. I think it's pretty much in proportion. Even my forecast for growth is also fairly secular. Now, maybe it's just coincidental that this quarter we called out four or five deals and three of the four is in Europe but I don't think you should read anything specific. We have pretty strong pipeline in US. We are already looking at a strong booking quarter in AMJ. So, we are really in a good situation from a secular growth. Gaurav just to add on to that on
Q
I just wanted some sense on the margins. I mean, we've seen the margin guidance kind of going up and down in a not a very wide range, but they're still kind of going up and down over years. I just wanted some sense on how you think about that, one in terms of the overall industry in terms of the ability to make margins based on the competitive scenario and secondly, kind of looking internally in terms of our ability to do better than others in terms of our operating efficiencies, how to reflect upon that, where we are today versus where we were like a few years back. Thank you.
C. Vijayakumar
Prashant first of all, our margins have been stable. If you look at the last five years, it's been fairly stable except there has been COVID-induced savings in the last couple of years, which gave us a little bit of spike and in FY22, we made a conscious decision to invest almost 1% of our revenue into some specific areas, which is kind of played out. But FY22 saw a significant talent supply-demand situation, which obviously kind of took the cost structures a little higher. So, that decline is somewhat in line with the industry, barring that 1% which we consciously invested. Given the current
Q
Thanks for taking my question and congratulations on a good set of numbers on the IT services side. My question was specifically on the demand environment. I remember that in last time call there was a greater sense of optimism on the overall demand environment whereas as of now, I am not seeing that sense of optimism. So, just wanted to get into some sensor understanding and how are you seeing the demand environment as of now? Is it still mid-teen kinds of an industry growth being there.
C. Vijayakumar
Yeah, I think from our vantage point, I mean, compared to the commentary in December to now, we feel actually more optimistic, because our pipeline is higher than what it was in December. It's the second highest that we've ever had. Our booking forecast for this quarter is very, very robust. So, demand environment commentary, I would disagree, we are very positive and that really seven or eight big themes which are playing out and if you felt it was less optimistic, let me clarify that we remain more optimistic than what we were in the last quarter.
Q
Thank you and we've had a very satisfying year. We started with the double-digit guidance we delivered 12.7% constant currency numbers. Of course, the operating environment from a talent supply perspective was more challenging than what we expected in the beginning of the year. So, we came a little lower on the margins, but as we move forward, as we look at our client relevance, our competitiveness in the market, in the Services business, we feel very positive about the outlook and that's really giving us the confidence and comfort to commit to a guidance of 12% to 14% which is, in our view, a
Management
Speaking time
Moderator
11
C. Vijayakumar
8
Prateek Aggarwal
4
Sandeep Shah
3
Kumar Rakesh
3
Ankur Rudra
3
Prashant Kothari
2
Sanjay Mendiratta
1
Nitin Padmanabhan
1
Ravi Menon
1
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Opening remarks
Sanjay Mendiratta
Thank you, Aman. Good morning and good evening, everyone. A very warm welcome to HCL Tech's Q4 and Annual Fiscal'22 Earnings Call. Trust you all are safe and in good health. We have with us today, Mr. C. Vijayakumar -- CEO and Managing Director; Prateek Aggarwal -- Chief Financial Officer; Mr. Apparao -- Chief Human Resource Officer along with the senior leadership team to discuss the performance of the company during the quarter followed by the Q&A. In the course of this call, certain statements that will be made are forward-looking, which involve a number of risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from those in such forward-looking statements. All forward-looking statements made herein are based on information presently available to the management and the company does not undertake to update any forward-looking statements that may be made in the course of this call. In this regard, please do review the Safe Harbor state
C. Vijayakumar
Good evening to all of you and I hope all of you are doing well. Thank you for joining us today for this fourth quarter earnings announcement for HCL Technologies. Tomorrow, as all of you know is Earth Day, which really reflects our support for environmental protection. At HCL Technologies, we have pledged to limit our greenhouse gas emissions aligned to a 1.5 deg. pathway by 2030 and to reach net zero by 2040. We've also defined what we call as material dozen commitment, with focus areas aligned to create impact across sustainable development goals. There are many programs underway at HCL Technologies, both to reduce our own environmental footprint and also enable our clients in their sustainability journey. On a related note, a few weeks ago, we were named Corporate Citizen of the Year 2021 by the Economic Times. This award recognizes and acknowledges companies who are flag bearers of social change, and champions of good governance across ESG goals. With that important message let me
Prateek Aggarwal
Thank you, CVK and hi, everybody. Good evening, good morning. I'll add on some important data points over the commentary that CVK just shared with you. As a first point, you may have noticed that we have moved from US GAAP as the accounting principles that we were reporting so far for the last couple of decades. We have moved to IFRS now and the move has been done such that both the financial year that we see in the publications before you are in the IFRS terms. So both FY'21, the previous year and FY'22, the current year numbers that you see are in IFRS, which by the way is not different from the IND AS statutory numbers that we've been publishing in rupee terms so far. And that has been the starting point right from the beginning of FY'21, which is April 1, 2020, which is the transition date for this move from US GAAP to IFRS. None of the accounting policies has changed. And the past numbers remain substantially the same as IND AS numbers published earlier. So that should not change
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