Annual Report Analysis - HCL Technologies Ltd ::Edelweiss, link

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HCL Technologies’ (HCL) FY14 annual report analysis highlights robust operating performance with revenue surging to INR321.4bn, up 25.7% YoY (14.4% in USD terms), and EBITDA margin catapulting 290bps YoY. Outsourcing cost as proportion to revenue rose from 11.1% in FY13 to 13.1% in FY14 and includes expense of hiring third party consultants as well as various customer-related services. Operating cash flow continued to be robust at INR64.6bn (FY13: INR44.9bn) led by profitability; however, trade and other payables (including supplier’s credit of INR4.6bn) stood higher, aiding cash flows, adjusted for which operating cash flow rose to INR59.5bn. HCL availed extended credit terms from supplier’s up to 360 days and issued letter of credit (LC) worth INR14.4bn (FY13: INR6.5bn) on which interest costs ranged from 1.5-10.0% p.a. Cash and liquid investments as at FY14 stood at INR94.1bn (FY13: INR42.5bn). Hedging proportion to sales declined in FY14 to 21.7% (FY13: 45.7%). Of total hedging contracts, proportion of options contracts rose to 34% during the year (FY13: 5%). Forex loss on derivatives reclassified in P&L rose from INR0.7bn in FY13 to INR5.5bn in FY14. MAT credit rose to INR4.6bn (FY13: INR3.4bn) and effective tax rate plummeted 550bps to 17.8% during the year due to higher share of profits in SEZ units.

What’s on track?

Robust operating performance continued in FY14 with healthy revenue and profitability spurt of 26% and 50% YoY, respectively. Revenue grew to a record high of USD5.4bn, 27.6% CAGR over past 5 years.

Operating cash flow stood at a robust INR59.5bn (adjusted for supplier’s credit) in FY14, up 46% YoY.

What needs tracking?

Outsourcing costs increased to INR42.1bn, 13.1% of sales (FY13: INR28.4bn, 11.1%). These include various customer-related services like hosting services, facilities management, disaster recovery, maintenance, break fix services, among others.

Deferred revenue (unearned income) rose to INR13.9bn (FY13: INR10.9bn) and deferred cost declined from INR7.0bn in FY13 to INR6.6bn in FY14. Over the past 5 years (FY10–14), HCL’s deferred revenue proportion to sales has dipped from 6.7% to 4.3% and deferred cost from 3.4% to 2.1%.

Unbilled revenue rose from INR17.1bn (6.7% of sales) in FY13 to INR20.2bn (6.3%) in FY14. Over 5 years (FY10-14), the proportion to sales increased from 4.4% to 6.3%.

Receivables increased by INR11.9bn in FY14 and were offset by INR11.9bn jump in trade and other payables, of which supplier’s credit rose by INR4.6bn (FY13: INR3.5bn). Higher payables including extended credit terms from supplier’s continued to aid cash flows and working capital cycle.

Supplier’s credit for working capital stood at INR8.1bn and INR6.3bn for capex, totaling INR14.4bn, for which HCL issued LCs to vendors at cost ranging from 1.5-10.0%.

LINK

https://www.edelweiss.in/research/Annual-Report-Analysis--HCL-Technologies-Ltd/27832.html