Fundamental Analysis of HCL Technologies Ltd.

In this article, we will explore HCL Technologies Ltd.. fundamentally, understand its business model and industry, and determine whether it’s a good investment fit for you.

HCL Technologies Ltd..

HCL is a top-5 IT services company in India in terms of revenues. Since it became a major player in the landscape, it has helped transform the software-led IT solutions landscape with an integrated portfolio of services. Currently, it also manages remote infrastructure technology, engineering, R&D services, and business process outsourcing (BPO). 

The company also manages and leverages its extensive global offshore infrastructure, and its network of offices in more than 46 countries. They work from around the world to deliver services around the world but are headquartered in India.

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Is the IT-software industry a goldmine investment?

The Indian IT industry currently stands tall as a global champion, boasting more than US $245 billion in revenue (as per FY23), and is expected to grow 15% year-on-year. The sector comprises almost 8% of India’s GDP and makes significant contributions to the economy, including in terms of employment generation.

Globally, developed countries outsource a lot of IT-software jobs to the Indian market, owing to significantly lower costs and technical expertise. Revenue generated from the export of IT services abroad amounted to more than US $194 billion last year.

Who are HCLTECH’s competitors in the IT-software sector?

Here are some of HCLTECH’s competitors:

• Tata Consultancy Services Ltd
• Infosys Ltd
• Wipro Ltd
• Tech Mahindra Ltd

History of HCL Technologies Ltd..

Here is a brief summary of the company through the years:

Early growth (1976 – 1999):

• HCLTECH was founded in Delhi by Shiv Nadar and Ajai Chowdhary as a modest equipment import-export business.
• The company, in the 1980s, pivoted into IT services and started catering to the domestic market with hardware distribution and system integration.
• By the 1990s, it had expanded globally and diversified into software development and IT consulting.

Expanding operations (2000 – 2010):

• HCL acquired Perot Systems, a US-based IT services company, propelling itself onto the global stage.
• By 2005, the company had its hands in engineering and R&D services, including cost optimization and strategic partnerships.

Present and the future (2011 onwards):

• In the last decade, the company has focused primarily on acquiring leading cloud infrastructure provider, CGR Technologies, and strengthening its cloud offerings.
• It also expanded into the blockchain industry and became a strategic partner for Google Cloud, further solidifying its cloud leadership.

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Company Profile of HCLTECH

Pros

• The dividend payout ratio remains healthy at 65.5%.
• Dividend yield of 3.37% is also a good sign for investors.
• The company has been lowering its debt significantly and now is almost debt-free.
• Over the last 5 years, the company’s growth has outpaced the growth of the industry by 1%. Net income has also grown at higher-than-industry levels.
• The company has a very high level of free cash flow, which has been growing at roughly 40% compared to the industry average of 14.45%.

Cons

• Mutual fund interest in the company has consistently fallen since June of 2022, going down from 10.24% to 8.26% today.

The finances

Shareholding pattern of Titan Ltd.

Here’s the shareholding pattern of Titan:

• Promoters: 60.82%
• Foreign Institutional Investors (FIIs): 18.80%
• Domestic Institutional Investors (DIIs): 15.62%
• Public: 4.54%

FII interest in the company has grown from June 2022 by almost 1 percentage point. While mutual fund interest decreases, DIIs have been piling more and more HCLTECH stock in the last 18 months, going up from 5.30% in June 2022 to 7.39% today.

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Peer multiple comparison

*As on 14.01.2024

Conclusion

So, that’s a brief overview of everything you need to know about HCL Technologies Ltd.. before investing. This information is by no means, however, exhaustive, and we encourage you to do your own research before investing.

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