- Over the last 12 months HCL performed consistently and cross the revenue milestone of $8 billion.
- HCL’s revenue per employee is the highest among its peers in industry and global competitors.
- HCL is among top 3 revenue per employee firm in the world.
- HCL’s EBIT per employee is also highest and better than some of the largest consulting firms in the world.
- HCL recorded Highest ever bookings in Q1FY19, led by next-gen infrastructure services and a variety of its Mode-2 services primarily Cloud-Native and digital offerings.
- HCL had 27 transformational deals in Q1, Nokia networks was the largest programs greater than $0.5 billion in TCV that it won.
Its bookings were broad based covering various industrial verticals:
- Telecom sector: Nokia
- Financial services: 4 large deals
- Retails, Co nsumer Packaging Goods (CPG) and Utilities
- HCL was very Effective in cross selling and up selling in its existing clients to deliver the better metrics.
- Reduction of $12 million in its India SI business and it has come down to 0.5% of HCL’s revenues.
- HCL successfully integrated the C3i acquisition which it started early in the last quarter.
- It announced new acquisition with H&D international in Germany. Geographic expansion is one of HCL’s inorganic strategies in addition to IP and digital or Mode-2.
- This will be helpful to HCL in automotive sector where there were some disruptive infrastructure transformation programs to enable autonomous vehicles.
Mode wise revenue Analysis
- Mode 1 revenues continues to be stable and Mode 2 & 3 combined revenue stand for 26.6% of total revenue.
- Mode 2 business has grown 8% QoQ. HCL has built several innovation labs across the world for Digital, Analytics, IoT Works and Cloud-Native. It has invested significantly in the pivotal Cloud-Native partnership.
- Cloud a doption and digital transformation is need of the business, primarily because of innovation, some agility and quick delivery of services
Focus on Mode 3
- Mode 3 business is 11% of its revenues. The margins are 25.2% at an EBIT level, significantly higher than company level margins.
- Mode 3 consist of two sets of products, one set of products are enabling Mode 1 products and these are mature products in mid or late stage of their lifecycle, these are 60% of total products.
- Other set of products are automation, AI, lot of things that they built in DryICE as well as some of the IP partnerships, these constitute 40% of Mode 3 products
HCL Performance Improvement
- Revenue: +5.3% QoQ , +14.2% YoY
- EBITDA Margin: +0.2% QoQ, +1.1% over the year
- Operating margin:+0.1% QoQ
- Net Income Margin:+0.4% QoQ
- EPS: +8% over the last Quarter
Trends in Infrastructure Market
- Customers spend a lot on shifting from one platform to another, with target of making foundation as “Digital Enterprise”, shift towards more consolidation and hybrid model
- Cloud is a means to drive innovation, new capability, drive modernization of applications, help, build more digital applications. They leverage all the new capabilities on AI, Cognitive, Cloud-Native.
- Infrastructure shifting from core infrastructure to application infrastructure platform and data infrastructure.
- Hyper integration between infrastructure and make it more agile to serve the digital needs of an enterprise.
- Chang e in Operating Model - driving autonomics at the center, significant AI machine learning and those capabilities.
Capabilities Improvement by HCL
- Product and platform market is growing CAGR 10% - 15 % in the industry. HCL is improving its capabilities in this field by leveraging IP partnership, expanding engineering functional team.
- Integration of Mode 1 and Mode 2 products to enhance capabilities to supplement HCL’s managed service and outsourcing offerings to customers.
- Transformation of the products in mature life cycle or having single digit growth into next generation products.
- Cross market digital footprint of HCL with upsurge in retail, CPG and healthcare.
Organic Growth of HCL
- HCL helps industry replacing their old IoT systems or traditional application service because of rising demand of next generation technology.
- Growth in Life sciences enabled by CPI and Public services is very organic. HCL has very promising Organic growth rates.
- He alth and financial services had grown 9% LTM YoY, Retails and CPG has grown 7% YoY, Life Sciences has grown by 10% YoY.
HCL’s Segmental Margins
- Mode 1 margin is very consistent with company level margin.
- Mode 2 margin is little lower than company level margin due to heavy investment in that area.
- Mode 3 margin is very much higher than company margin.
Segments based on Product’s Lifecycle
- More decent business split of HCL would be 60% of businesses in mature products and 40% in high growth. Its IP partnership is also decent mix of mature and high growth products.
- HCL has imbedded IP partnership and products into its outsourcing businesses.
- Its regular Mode 1 businesses consisting of infrastructure business and engineering business have a lot of opportunities to re-innovate and differentiate and thereby create higher growth opportunities.
- HCL’s EBIT margin YoY has been declined due to renewal and structure reduction happened at the beginning of the year.
- Most p art of the segmental earning has been invested in cloud and security.
- Within Mode-3, 40% revenues are new technology and 15.5% are Mode-2.
- Cloud services Private cloud and utility services are classified as Mode 2 service has a lot of scope for investment and improvement.
- 130 bps of guidance is built through acquisitions. Ci3 acquisition which had single digit EBIT margin has impact on gross margin decline.
- Tax assumption for FY 2019 is 22-23%. Net investment is 177 million , however the number look small (125 million) on financial statement due to currency effects.