1. Company & Business Strength: 9/10
HCL Tech is an Indian MNC service and consulting company headquartered in Noida, India. It's a subsidiary of HCL
Enterprise. It was originally started as an R&D division
of HCL, and it emerged as an independent company in 1991 when HCL entered into the
software services business. The company has offices in 52 countries and
over 2Lakh+ employees.
2. Competitive Strength: 7/10
Since HCL tech has been an IT Service company, its competitors have other giants like TCS, Infosys, Wipro, Tech Mahindra, L& T Infotech, Mindtree, Mphasis & others.
Although Indian IT service is projected to have high growth, even though it has many competitors, it would benefit everyone in this space in terms of market share throughout the world.
3. Stock Analysis Return & PE Ratio: 10/10
HCL Tech Stock is listed both in NSE, and BSE and currently trading around 1150 (Feb 2022), with a 52 high of the 1350s and a low of the 900s.
It has a market cap of 315000+ which is a Large cap, Stock has been consolidating for some time now between 1000 to 1300, and since both profit and Sales are still growing on a quarterly/yearly basis there is not much downside left here.
The stock has given a 3-year CAGR of 29.9% which is exceptional.
The face value is 2, so expect split, bonus, and buybacks.
PE Ratio: Britannia has a PE of 28 which is fair compared to sector PE.
4. Dividend: 8/10
The stock has been giving an exceptional dividend of 0.86% which good. Generally, we expect a growing company to give atleast 1% dividend which is a good gesture and sign unless high Capex is planned.
Financial Ratios:
5. Sales Growth/Revenue: 8/10
The Sales growth indicates that the company can capture the market, and which may increase profitability.
HCL tech has a 3-year median Sales growth of 17.35% which is fair. Current year (2021) growth stands at 9.21%. For large caps, we consider the growth of atleast 10%+ as healthy sales.
6. Profit Growth: 5/10
Sales growth indicates a good income, but unless profit is not made it's terrible. Profit growth indicates how expenses are managed or also how the company has pushed the raw material prices to end customers.
HCL tech Profit growth stands at a 3-year median of 5.9% which is poor, Current year stands at -2.5%. For a large cap, atleast 15%+ is considered healthy growth in Profitability.
7. [ROE] & [ROCE] %: 10/10
Return on Equity:
ROE indicates the ability to generate profits from shareholders/Equity Investments. HCL tech ROE has a 3-year median of 25.39%. The current year stands at 21.56%.
We consider a healthy ROE to be atleast 20% for growth companies.
Return on Capital Employed:
ROCE indicates the ability to use its capital employed for business. HCL tech ROE has a 3-year median of 32.87%. The current year stands at 30.89%.
We consider a healthy ROCE to be atleast 20% for growth companies.
8. Debt/Equity: 10/10
D/E is a measure of which a company is running through debts vs owned funds. Ideally, D/E should be less than 1, which indicates stability.
HCL tech has a D/E of 0.01 which is good. Unless capital expansion or any other is required, a low debt is always good to maintain profitability.
We consider debt-free or D/E<0.1 to be healthy.
9. Shareholding %: 10/10
The company has a high Promotor holding of 60.33%. The FII and DII of 20.43% and 13.76% indicate it is in strong hands. The remaining are for the Public.
Note: The Promoter Pledging % is 0% which is good, generally no pledging indicates a good sign.
Another indicator like interest coverage ratio, Return on Assets[ROA], and others also seems good.
10. Future Prospects: 9/10
Pros:
Indian IT service is projected to have high growth in the future due to relatively lower billing costs, remote working, and good labor skills. HCL Tech would be benefited from this as its one of the leading companies.
The Financial ratios have been very good in most aspects except Profit growth.
A good dividend is given by the company.
The company is debt free.
The company has won large deals which would be reflected in the long-term Sales and profits.
Trading at low PE compared to sector companies.
Cons:
Profit Growth is a bit bad n the last 3 years compared to sector companies.
Relatively competitive and high attrition rates in IT companies.
Investment Hacks Score Card:
The average score of HCL Technologies Ltd based on all factors comes to be 8.6/10.
Conclusion:
HCL Technologies Ltd has been one of the leading IT service companies in India and in the top 5 IT service companies in India, also which a highly profitable company. The stock has given multifold returns to shareholders from listing. Since this is a large cap with great fundamentals Investors can see the limited downside and consider it a stable investment. Also, Investors should not be their competitors, and also future deals won by the company and review the profit on a quarterly or yearly basis for the long term.
Disclaimer:
Since this is an educated opinion, Please research thoroughly or consult your financial advisor before Investment.
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Team Investment Hacks
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