HCL Technologies has declared its consolidated first quarter results. The company's Q1 net profit stood at Rs 356.2 crore versus Rs 141 crore. Its consolidated net revenue stood at revenues were at Rs 2639.3 crore versus 2168.8 crore. The company's forex loss was at Rs 97.4 million.
The revenues were flat at USD 504 million. Its net profit was at USD 75.9 million versus USD 32.8 million.The company's EBITDA margin was at 22.4% versus 23.4%; drop of 100 bps.
Shiv Nadar, Chairman and Chief Strategy Officer, HCL Tech; Vineet Nayar, CEO, HCL Tech; Anil Chanana, Executive Vice President of Finance, HCL Tech; and Ranjit Narasimhan, President and CEO of HCL BPO spoke to CNBC-TV18 in an exclusive interview.
Vineet Nayar said that the environment — referring to the global financial crisis — is concerning, but added the company has not seen any specific actions by clients. The company, Nayar said, had signed USD 270 million worth of deals last quarter. "We are currently engaged in about USD 2 billion of deals."
On the Axon deal Shiv Nadar said that the Axon's client base was complimentary to its own client base. "It gives us a big opportunity for large a drag on revenues and that’s a fundamental which has attracted us towards Axon."
Here is a verbatim transcript of the exclusive interview with the HCL management on CNBC-TV18. Also watch the accompanying video.
Q: How bad is the environment out there globally and have you had reason because of this environment to relook at your medium-term annual guidance?
Shiv Nadar: Currently we have a set of results in front of us and I would like to give a preamble because that’s the ambience in which these results should be looked at. HCL has more than half of its cost in Indian rupees. More than 80% of the disposable surplus is distributed between dividend or capital equipment creation and they are all in rupees.
Our revenues in the last quarter grew at 38.6% YoY (year-on-year) and 9.2% sequentially. We deal with in something like 55% in US currency, 30% in European currency and the rest in Asian currencies. I believe it is a significant growth. The company’s net income is at 356 crore up 15.5% YoY and 152% sequentially. We would be declaring an interim dividend of 150%, which is a 23rd consecutive quarterly dividend payout our company has done.
Our total EBITDA went up to 536 crore which is a 46% increase YoY. It is a huge increase and EBIT went up by 49% YoY. This is the money available to us for redistribution and this money goes towards dividend and that is why we are able to sustain our dividend policy continuously.
The purpose of the dividend policy is to ensure that income is received by the shareholders of HCL with regularity. The definitiveness of our quarterly dividend has been well appreciated by all shareholders. In today’s uncertain market conditions when private debt funds themselves are struggling to give an yield, which is around 8-9% where the certainty is low - as on today’s price if somebody buys it, the return post tax from HCL dividend alone is 8%. So it is a substantial dividend policy that we are maintaining over this entire period.
Our gross addition during this quarter is about 2,000 employees, In the BPO (Business process outsourcing) there had not been substantive addition. Actually there is a decrease considering that Liberta people and CPS (Control Point Solutions) employees were added into our headcount.
Nayar: The environment we see outside is of concern. But this has not resulted into specific actions negative or positive by our customer. We signed USD 300 million worth of deals last year and we signed USD 270 million of deals this quarter. Currently HCL is engaged in about USD 2 billion worth of deals, which spans across the globe with about 55% of them engaged with global majors.
So despite what we see in the market and despite the TPI (Technology Partners International Inc) report, which is not very positive about the July to September quarter, we continue to see deal flows, we continue to see engagement. There is a headwind that all of us are feeling but I believe that the way the customers are responding with increased offshoring and outsourcing contract the company’s future is bright.
Q: Before I talk about the quarterly numbers just want your thoughts on the Axon deal because some analysts of your stock have observed that given the current SAP environment which seems to have worsened over the last quarter or so it could turnout to be an expensive proportion for you – what are your thoughts on the strategic nature of the deal and the value that you are laying on the table?
Nadar: Given the current market situation Axon would offer addition avenues for HCL to expand its services, expand its client base. The client base of Axon is very complementary it’s not parallel to that of HCL. It gives us a big opportunity for large a drag on revenues and that’s a fundamental which has attracted us towards Axon. They are quite deeply to reign into many of the customer locations, their customer engagement have been long and there are three-five year kinds of engagements and their order book too is good. So we were looking for something in company and it is there.
Q: I am going to read out something which has come from an investment bank after your results yesterday and it highlights that – a quote from this report ‘high hedges with 100% forward cover are a major overhang on HCL Technologies earnings’ and it goes on to say that ‘HCL Tech’s policy of hedging for as high as compared to nine quarters is quite disagreeable.’ How would you respond to that concern?
Chanana: We have hedges in dollar/rupee terms of something like 1.8 billion and others in euro and GBP (Pound Sterling) of another 100 million put together. On the average rate there is about Rs 41.6 paise covering us for the next seven quarters. Except 20-30 million of range bound options we have used plain vanilla forward covers which can be understood and can easily be comprehended. The mark to market covers are about USD 350 million and the rest goes into the OCI (Other Comprehensive Income). As it gets realised it will be booked through the P&L (Profit & Loss) account.
Q: A word on the BPO performance which doesn’t seem to have been very robust this quarter. Are you witnessing some pressures?
Narasimhan: This quarter has been strategically important for the BPO. During this quarter we completed the acquisition of Liberta Financial Services and Control Point Salutations successfully. This re-enforces our strategy of de-linking from linear monotonic growth and de-linking the growth in revenue from the growth in headcount and total strength of value based, platform based services offering. The QoQ increase in revenues with QoQ decrease in manpower and the results will be more visible in the quarters to come.
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