HCL Technologies

When one looks at Top 5 IT companies in India, HCL has the lowest PE ratio as well as lowest PEG ratio. Given that HCL has given highest profit and sales growth over last 5 years among big 4, it seems very odd to me. Even the margins are very close to Infy and much better than Wipro.

Is it bcoz of the IBM acquisition alone? Can someone please throw some light on this?


Hello @Sanjeev_Bansal good Question. I am invested in top 3 with highest allocation to HCL followed by Infy and TCS. I also tried to find the answer but couldn’t come across convincing one. But some thoughts…

Generally market gives higher PE to 1st and 2nd leader like banking or paint ind etc. However why HCL lags behind 4 & 5th player, don’t know. But we can take this as opportunity. Market is efficient at last and hope they may catch it soon - that’s what I think, have right to be wrong.

I myself in IT and have IT allocation more than 55% of my PF, I use various method to find efficiency of my holding IT companies. As we know HR is most important for IT companies. Hence besides general comparison I compare them per employee as well.
Below is the some statistics:

TCS: Revenue / Emp: ~ 3 Lakhs / Month &
Profit / Emp: 62000 / Month
Same for infy is 3.45 L and 69 K
Where as for HCL its 4 L and 83 K.

This is as per latest Q3 result and taken as appro for calculation purpose.

Disc: Not recommendation. Have interest hence my views are biased.


Even though i agree with your discrepancies, when we look at the Market returns HCL has outperformed rest over 10 year horizon and for rest of the term its more or less the same. With the growth and guidance they are giving for rest of the horizon we might outperform it peers. Personally i am very bullish on this stock and investing on every correction.


This is taken from recent Q3 result from HCL Tech.

I have question, if anyone can assist?!?..

How company consistently have higher cashflow than profit?
As in business say we calculate profit and book it in to account books. Than, as per terms of credit, we gets cash from clients. In most business cashflow will be equal or less than 100% Net Profit. If cash goes higher than profit, that means we taken advance from client, that will be equalised in coming Quarter or year.
Is this correct understanding or am I missing something?
Thanks in advance.


I guess you are missing impact of Depreciation and Amortization. It will be added back to Net income to calculate Operating Cash flow.
Whenever you acquire an asset, the impact is shown in Investing cash flow, hence Operating cash flow will always be higher compared to Net income by amount of Depreciation & Amortization (as long as you are getting paid by customer in cash as well).


HCL Tech has taken a slightly different path compared to traditional Indian IT companies which are more service oriented. HCL did a large acquisition from IBM products business a couple of years ago which the market disliked. Here are some interesting insights as to how the product business segment is performing (link):

  • Products and platform business (IP investment) grew at 9% YOY in Q3FY21. Products business will be more lumpy in nature compared to services
  • EBITDA margin (which is closer to cash generation of company) came at ~29% for Q3FY21 and 27% for the YTD
  • Last 6 month YOY growth for IBM product business that was acquired is ~13% (one of the fastest growing business verticals for HCL and across the industry)
  • Industry growth over the next 5 years will be higher than what it was in the last 5 years
  • Services part of the industry will probably grow in double digits in FY22; not sure of the products business yet as they have only 2 quarters of history after the initial one year completion

Disclosure: Invested (position size here)


It is also dividend payout percentage. HCL shared lower percentage of profit with shareholders compared to tcs and Infosys for last 10 years.


@harsh.beria93 the 1.8 billion payout to ibm was supposed to be done over a time period. Any idea if it has been completed or some of it is still due in coming quarters ?

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HCL Technologies Ltd. Concall Update

Revenue expected to grow in double digits in constant currency for FY’22. EBIT margin expected to be between 19.0% and 21.0% for FY’22. Management has indicated that around 100 bps of margin impact in FY22 will be on account of investment in new geography. The consensus EBIT margin expectation in FY22 21.2% as such will see some downgrade in earning or around 3-5%
• TCV is Strong -New Deal TCV hit an all-time high this quarter at US $ 3.1 B, increasing 49% YoY. For FY’21, New Deal TCV are US $ 7.3 B, which is 18% increase over FY’20
• CC QoQ came at 2.5% Dollar revenue came at $ 2695.9 Mn,(3% QoQ, 6% YoY)
• EBITDA Margin dipped by 224 bps QoQ and came at 25.9% which was impacted by Wage hike by (60)bps, Seasonal decline in revenue in BMp by (73 bps)Large no of fresher hiring by (61) bps and Forex by (21) bps
• Plans to hire 15000 entry level over the year in FY22
• On segmental front,
• IT and business Services – Grew by 5.2% QoQ. Going ahead this segment is Expected to have Strong growth with good demand from digital transformation deals
• Engineering and R&D Services – Grew by 0.4% QoQ. The growth impacted by covid in auto and aerospace. Going ahead , this segment is expected to Low single digit
• Products and platform -75% of this segment is expected to have got strong double digit growth in medium term . Remaining 25% is expected to have more of a sustain growth
• Adj. PAT came at Rs. 2962 Cr excluding bonus to employees of Rs.575cr.


Adjusted HCL’s EPS (excluding employee onetime bonus plan) is 47.9Rs in the fiscal year 2020-21.

I wonder why the company is trading with lower than 20 P/E compared with other competitors like TCS (~34 P/E), Infosys (~29 P/E), and Wipro (~26 P/E)?


(Top IT firms faced a drought of new clients in FY21 - The Hindu BusinessLine
hcl tech will have a major impact going forward…huge reduction in new client additions …very thankful for your ideas and comments …

This is the effect of pandemic and same is there in their revenue of FY 20-21.
However going forward the deal pipeline is strong. They are hiring more resources; Armed with big-ticket deals, IT majors report strong hiring in FY21 - The Hindu BusinessLine

For next couple of yrs the fight will be on hiring and maintaining resources. I run IT company and can see the effect in local hiring - candidate gets offer of 1.5 times plus of standard salary.


I don’t think management is an issue.

Key issue is acquisition of IBM products which were mature and market feels that they will show declining revenue in future.

But this can be an icing on the cake. This may provide a platform for HCL to diversify in product business.

Check this out. OUR MODE 1-2-3 STRATEGY | HCL Technologies

Market is not convinced about Mode 3 of strategy.

On other Motilal Oswal feels that market is not valuing product biz appropriately and sees significant upside.


Q2Q Updates

Management Changes :

HCL appoints Siki Giunta to lead its Cloud Consulting and Offerings Strategy) continues to accelerate its #HCLCloudSmart journey; appoints Siki
to lead its Cloud Consulting and Offerings Strategy

HCL appoints leadership team in South Korea, Vietnam and Taiwan to
accelerate growth in Asia

HCL Appoints Country Head for Spain and Portugal

New Clients

HCL Technologies to Bring McLaren Health Care’s Digital Transformation
Vision to Life and Deliver Cost-Efficient Solutions
Noida, India, May 25, 2021 – HCL Technologies (HCL), a leading global technology company, was
selected by McLaren Health Care, a fully integrated health network committed to quality, evidencebased patient care and cost efficiency, to provide digital transformation, standup a global EMR
(Electronic Medical Record) Center of Excellence, and enable higher standards of service to members,
providers, and employees

July 2, 2021 - HCL and Fiskars Group announce a strategic partnership for Digital


Q1 FY 22 call highlights - focus on future performance

  • 37% TCV( these are net new deals) growth YoY at $1.67B for Q1 22
  • Double digit rev growth of 10% they are confident in CC, rather than numerical guidance they believe TCV of new deals in every Qtr is a better color

They might be conservative on revenue growth at X but looks like they have more levers to deliver better on bottomline- probably 1.5X to 2X following are some facts/ observations

  • Supporting above facts are hiring plans - 14K freshers in FY21, planned 22K in FY22 - pyramiding to help margins and skill factory
  • Most lateral hires in Q1 are in Mode 2( digital) - higher growth areas
  • With 74% workforce vaccinated they are unlikely to be hit hard from disruption in future - one of the key issue in Q1 during second wave was their higher employee base in India NCR+Chennai (60% employees) were affected higher than other cities - one factor for relative low performance to peers as billing would have got affected
  • They have called out large deals mix of 8 in services and 4 in products- product deals are higher margins
  • Double digit growth for FY22 is having higher offshore components hence higher margins
  • On a medium term looks like their bet is paying off where product + services capabilities is helping them not only get larger deals but also synergy efficiency to create stickiness and better margins for Eng svc and Products at 25%( 30% rev) as opposed to App svc at 18% type ( 70% rev)- most of this quarter wins have 2 or more service lines
  • in general Demand is strong from Q3 is verticals like Life science etc but asset hevay vertical are also showing growth- hence Engg svc good performance QoQ
  • EU drop in QoQ revenue was acknowledged but confident of growth trajectory with regional leadership teams in place and good deal pipeline
  • Q4 TO Q1 flattish trend - Looks like they had a large deal win in 19-20 for $1.2B which each year has a on-site to offshore component playing out, hence some revenue loss, and skewing the revenue growth view - this is a flip side of large rebadging deals but should taper off

Bit disappointed as was keen to understand their product and platform growth plan deeper as that is a key differentiation from peer group and risky bet - however to some extent it is visible in large deal wins commentary



Quarterly performance


  • Services - 5%+ QoQ and 13%+ for 85% of biz( outside product & platform)
  • Net new bookings of $2.3B , 38% YoY growth ( highest among larger peers)
  • Attrition in mid range of peers.
  • Employee cost going up, hiring is strong 11K for this Qtr
  • 75% dividend payout policy - 10/qtr at current run rate - close to 4% yield.


  • Product and Platform ( mid teen biz share) degrowth QoQ and YoY, drags performance as whole, still patchy and need to see commentary, however is a higher margin biz, Q3 is usually strongest- full year guidance lowered to flat for this biz
  • BFSI muted( high growth for other peers e.g. high teens for TCS) , drag by products and platforms renewal delays

HCL was first to give Bonus to larger workforce in Jan, has also come up with RSU plan for senior leaders

Given good growth numbers by larger peers and sector doing well, performance looks lagging. However consol guidance is maintained, new bookings are very strong supported by hiring , may underperform like TCS for short term.

Demand scenario is strong, they have solid new biz win, product&platforms are bit patchy but should compensate at annual levels, peers valuations discount may continue till P&P segment stabilize as more consistent - mgmt didn’t sound very confident here and lowered P&P guidance to flat for FY22.

My take is that services biz will grow inline with sector at healthy mid teen for FY 21( has done mid teen in H1), at current TTM they are at 50 EPS, given strong tailwinds for sector and demand visibility, they are well positioned for mid term for mid teen growth at consol. Midcap IT valuations are closer to FMCG and HCL at TTM EPS basis available at 25 PE. Product and Platform biz is different animal and performance is a question mark as of now though this was a differentiation investment thesis for many including self - will need to give it some more time and it may need some Org structure different from current to enable a better runs well as leadership front.

HCL vs TCS - some observations

For some reasons TCS approach to build organic IP/Solutions seems better placed and integrated to whole organizational strategy, one can see press releases for TCS and majority wins have some Solutions/IP elements, whereas when we go through HCL wins list and it seems services heavy though they have a dedicated P&P unit. If TCS were to decouple and report, they may actually outshine IMO.
Another aspect is TCS overall Employee cost have come down as revenue % per Rajesh interviews, HCL it as gone up despite doing right things - bonus, hikes etc., managing Attrition TCS beats entire industry hands down

Key monitorables

  • Mgmt has indicated Q3 to be strongest season for Product & Platforms- need to see if this delivers
  • Margins ( they are on lower band of guidance in H1)
  • Employee cost as % of revenues
  • Future capital allocation- though new policy of 75% dividend payouts limits any misadventure but at the same time shows scarcity of sound re-investment options( or sending a message to market?)

Invested in both HCL and TCS


HCL Deal win this quarter is the highest ever


Reposting my comments on HCL FROM another thread for better context

HCL acquired legacy sunset products from IBM. The plan is to make them cloud. Native and resell them in their new version to customers

Among the acquired products is Lotus notes which is a really old mail server. They have lost some big customers on this in the recent past. I will not be surprised if this is causing the drag. My evidence on this is anecdotal.

That said they have a few other products like big fix and some security and deployment products which seem to be doing better.


Have they ever talked or been asked about demerger of products segment …any organisation restructuring vision for very long term?

Since which Q they changed this policy to 75% payout and what was it earlier? How does it compare with payout percentages of TCS, Infy, Wipro …and even midcaps like LTI, mphasis… probably that would give direction on whether dearth of opportunities is for everyone or hcl alone…also IMO 75% payout still leaves a decent amount for small/mid size acquisition…