HCL Tech - Q1FY22 first cut - YES Securities

Current Rating - BUY. Revenue and EBIT Margin less than expected

- Reported revenue of $2,720 mn, up 0.9% QoQ, (up 2.2% QoQ in INR terms) less than expected due to around $7mn impact in Revenue from 2nd covid wave disruption in IT Services delivery and weak growth in Product business. Sequential growth was led by strong performance in Engineering and R&D services. In terms of verticals, FInancial Services and Healthcare performed relatively better.

- EBIT Margin declined by 70 bps QoQ to 19.6%; decline was slightly more than expected due to around 90 bps impact of covid, investment in digital engineering capabilities and geographical expansion.

- Strong deal booking as it signed new deal wins of $1.66 bn, up 37% YoY, that included 8 large service deal wins.

- Net cash at $2bn as of Q1FY22. DSO increased by 2 days during the quarter.

- LTM Attrition increased by 190 bps QoQ to 11.8% (one of the lowest in industry)

- Added 7,522 employees during the quarter with total headcount at 176,499.

- Declared dividend of Rs 6/ share for the quarter.

- FY22 guidance: Double digit revenue growth with EBIT margin guidance of 19-21%.

Concall Highlights

- The second Covid19 wave had comparatively bigger impact on company due to its major precence in Delhi NCR

- Record deal booking provides revenue growth visibility (1-2 quarter of delay in conversion into revenue doesn't matter much)

- Expect strong performance in Q2FY22 based on deal wins

- Margin in Product and Platform has declined from 28% to 23% QoQ due to higher investment in sales team for the business and its margin should improve from next year.

- Also had one time tax benefit of $10 mn

- The dip in growth in the quarter is temporary and the company would able to make up for it stronger H2FY22.

- Focus on geographical expansion continues with key focus being, Merico, Brazil, Spain and Portugal.

- Double digit growth guidance for FY22 remains. Expect revenue growth acceleration in FY23.

- Overall, revenue and margin was less than expected but the overall outlook remains strong led by 37% YoY increase in deal booking. We currently have BUY Rating on the stock.

Shares of HCL TECHNOLOGIES LTD. was last trading in BSE at Rs. 977.3 as compared to the previous close of Rs. 1000.2. The total number of shares traded during the day was 570227 in over 22111 trades.

The stock hit an intraday high of Rs. 1008 and intraday low of 969.5. The net turnover during the day was Rs. 558043703.

Source : Equity Bulls

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