FA Project Report on HCLT Ltd

8/8/2019 FA Project Report on HCLT Ltd

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Project Report on financial analysis of HCLT ltd.

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INTRODUCTION TO IT SECTOR

Information technology (IT) is "the study, design, development, implementation, support or

management of computer-based information systems, particularly software applications andcomputer hardware", according to the Information Technology Association of America

(ITAA).[1] IT deals with the use of electronic computers and computer software to securely

convert, store, protect, process, transmit, input, output, and retrieve information.

As it pertains to technology, IT spans a wide variety of areas that include but are not limited to

things such as Processes, Computer Software, Computer Hardware, Programming Languages,

and Data Constructs. In short, anything that renders Data, Information or perceived Knowledge,

in any visual format whatsoever, via any multimedia distribution mechanism, is considered to be

a part of the domain space known as Information Technology (IT).

As it pertains to organizations within enterprises, IT represents an operational group that helps

solve such problems as those related to data, information and knowledge capture, persistence,

processing, brokering, discovery and rendering. Such organizations can be as small as one or two

people that can be shared between multiple small business and as large as multi-billion dollar

structures that are common in all Fortune 500 enterprises.

Today, the term information has ballooned to encompass many aspects of computing and

technology, and the term has become very recognizable. IT professionals perform a variety of

functions (IT Disciplines/Competencies) that range from installing applications to designing

complex computer networks and information databases. A few of the duties that IT professionals

perform may include data management, networking, engineering computer hardware, database

and software design, as well as management and administration of entire systems. Information

technology is starting to spread farther than the conventional personal computer and network

technology, and more into integrations of other technologies such as the use of cell phones,

televisions, automobiles, and more, which is increasing the demand for such jobs.

In the recent past, ABET and the ACM have collaborated to form accreditation and curriculum

standards[2] for degrees in Information Technology as a distinct field of study separate from
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both Computer Science and Information Systems. SIGITE [3] is the ACM working group for

defining these standards. The Worldwide IT services revenue totaled $763 billion in 2009.[4]

It is important to consider the overall value chain in technology development projects as the

challenge for the value creation is increasing with the growing competitiveness between

organizations that has become evident. The concept of value creation through technology is

heavily dependent upon the alignment of technology and business strategies. While the value

creation for an organization is a network of relationships between internal and external

environments, technology plays an important role in improving the overall value chain of an

organization. However, this increase requires business and technology management to work as a

creative, synergistic, and collaborative team instead of a purely mechanistic span of control.

Technology can help an organization improve its competitive advantage within the industry inwhich it resides and generate superior performance at a greater value, according to Bird[5].
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HCL TECHNOLOGIES LTD.

Type Public

BSE: 532281NSE: HCLTECH

Industry IT Services

Founded 1976

Headquarters Noida, UP, India

Key people

Shiv Nadar - Founder, Chairman, CSOVineet Nayar - CEO

Anant Gupta - President, Infrastructure Services DivisionRahul Singh - President, BPO Business Services

Revenue US$ 2.6 billion (2010)

Employees 72,000 (2010)

Website www.hcltech.com

HCL Technologies (HCLT)[6] is a global IT Services company headquartered in Noida, India

and led by its CEO Vineet Nayar. It is the IT services arm ofHCLT, a US$5 billion global

Technology and IT Enterprise. HCL Technologies, along with its subsidiaries, had

consolidated revenues of US$2.6 billion, as on 31st March 2010, and employed more than

70,000 people.
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SERVICES

HCL's main service offerings are along the following business lines:

Engineering and R&D quality Services(ERS) Enterprise Transformation Services(ETS)

Business Processing Outsourcing(BPO)

Custom Application Services

Enterprise Application Services(EAS)

IT Infrastructure Management

HCL serves a broad range of industries including Financial Services, Education, Hi-tech &

Manufacturing, Aerospace & Defense, Telecom, Retail & CPG, Life Sciences, Healthcare,

Media & Entertainment, Travel, Transportation & Logistics, Automotive, Government, and

Energy & Utilities.

ACQUISITION AND JOINT VENTURES

The company acquired Capitalstream, a US BFSI product company for US$40 million in

February 2008. Capitalstream's Finance Center product is an addition to HCL's current product

addressing the BFSI market - Penstock, the product that HCL launched in 2007.

On 15 December 2008, HCLT acquired the UK based AXON Group for US$658 million, which

was renamed HCL AXON after the acquisition. It was the largest acquisition ever in the history

of the Indian IT industry, surpassing Wipros $600 million acquisition of Infocrossing in 2007.
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RATIO ANALYSIS

Companies use calculations between different sets of data on the annual report to

determine the short-term financial health and long-term financial health of the firm. Ratios also

provide the changes in a company caused by internal and external factors often not displayed in

individual financial statement information, such as the cost of goods sold. A ratio is a simple

mathematical expression of the relationship of one item to another.

Different ratios provide different information to different financial information users,

including the company.

ADVANTAGES OF RATIO ANALYSIS

Financial ratios are essentially concerned with the identification of significant accounting data

relationships, which give the decision-maker insights into the financial performance of a

company. The advantages of ratio analysis can be summarized as follows:

Ratios facilitate conducting trend analysis, which is important for decision making and

forecasting.

Ratio analysis helps in the assessment of the liquidity, operating efficiency, profitability

and solvency of a firm.

Ratio analysis provides a basis for both intra-firm as well as inter-firm comparisons.

The comparison of actual ratios with base year ratios or standard ratios helps the

management analyze the financial performance of the firm.

LIMITATIONS OF RATIO ANALYSIS

Ratio analysis has its limitations. These limitations are described below:

A ratio in isolation is of little help. It should be compared with the base year ratio or

standard ratio, the computation of which is difficult as it involves the selection of a base

year and the determination of standards.
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Inter-firm comparison may not be useful unless the firms compared are of the same size

and age, and employ similar production methods and accounting practices.

Even within a company, comparisons can be distorted by changes in the price level.

Ratios provide only quantitative information, not qualitative information.

Ratios are calculated on the basis of past financial statements. They do not indicate future

trends and they do not consider economic conditions.

CONCLUSION

Ratio analysis has a major significance in analyzing the financial performance of a company over

a period of time. Decisions affecting product prices, per unit costs, volume or efficiency have an

impact on the profit margin or turnover ratios of a company. Similarly, decisions affecting the

amount and ratio of debt or equity used have an effect on the financial structure and overall cost

of capital of a company. Understanding the inter-relationships among the various ratios, such as

turnover ratios and leverage and profitability ratios, helps managers invest in areas where the risk

adjusted return is maximum. In spite of its limitations, ratio analysis can provide useful and

reliable information if relevant data is used for analysis.


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BALANCE SHEET OF HCLTHCL Technologies

Balance Sheet ------------------- in Rs` Cr. -------------------Jun '05 Jun '06 Jun '07 Jun '08 Jun '09

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of Funds

Total Share Capital 63.84 64.69 132.74 133.27 134.05

Equity Share Capital 63.84 64.69 132.74 133.27 134.05

Share Application Money 1.64 1.33 0.00 1.71 0.47

Preference Share Capital 0.00 0.00 0.00 0.00 0.00

Reserves 2,796.14 2,511.18 3,292.28 3,079.85 3,353.72

Revaluation Reserves 0.00 0.00 0.00 0.00 0.00

Net worth 2,861.62 2,577.20 3,425.02 3,214.83 3,488.24

Secured Loans 96.42 13.17 40.77 25.24 123.81

Unsecured Loans 0.27 0.21 0.12 0.09 389.92

Total Debt 96.69 13.38 40.89 25.33 513.73

Total Liabilities 2,958.31 2,590.58 3,465.91 3,240.16 4,001.97

Jun '05 Jun '06 Jun '07 Jun '08 Jun '09

12 mths 12 mths 12 mths 12 mths 12 mths

Application Of Funds

Gross Block 632.06 1,014.08 1,332.67 1,599.61 1,957.86

Less: Accum. Depreciation 272.11 488.40 662.58 874.32 1,100.88

Net Block 359.95 525.68 670.09 725.29 856.98

Capital Work in Progress 71.78 163.63 212.86 419.03 417.56

Investments 2,654.66 1,907.76 1,988.86 1,797.34 562.75

Inventories 0.00 0.00 0.00 0.00 87.01

Sundry Debtors 306.41 645.98 712.48 980.02 1,489.26

Cash and Bank Balance 81.14 104.51 105.93 162.87 144.00

Total Current Assets 387.55 750.49 818.41 1,142.89 1,720.27

Loans and Advances 166.02 376.41 934.44 1,183.99 1,817.97

Fixed Deposits 3.39 1.71 275.01 524.01 1,221.83

Total CA, Loans & Advances 556.96 1,128.61 2,027.86 2,850.89 4,760.07


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Deferred Credit 0.00 0.00 0.00 0.00 0.00

Current Liabilities 511.11 935.02 1,003.02 1,828.85 2,217.44

Provisions 173.93 200.08 430.74 723.54 377.95

Total CL & Provisions 685.04 1,135.10 1,433.76 2,552.39 2,595.39

Net Current Assets -128.08 -6.49 594.10 298.50 2,164.68

Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.00

Total Assets 2,958.31 2,590.58 3,465.91 3,240.16 4,001.97

Contingent Liabilities 511.56 331.01 418.65 469.36 3,317.46

Book Value (Rs) 89.59 79.64 51.61 48.22 52.04


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Tax 12.15 15.45 75.87 94.60 196.61

Reported Net Profit 329.27 638.38 1,101.82 780.65 997.31

Total Value Addition 1,090.48 2,223.16 2,831.54 3,388.43 3,285.42

Preference Dividend 0.00 0.00 0.00 0.00 0.00

Equity Dividend 501.75 516.10 525.59 598.58 469.61

Corporate Dividend Tax 68.17 72.38 81.60 101.72 79.73

Per share data (annualized)

Shares in issue (lakhs) 3,192.15 3,234.42 6,636.83 6,663.40 6,702.57

Earnings Per Share (Rs) 10.31 19.74 16.60 11.72 14.88

Equity Dividend (%) 800.00 800.00 400.00 450.00 350.00

Book Value (Rs) 89.59 79.64 51.61 48.22 52.04


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LIQUIDITY RATIOS

(I) CURRENT RATIO

Current ratio for HCLT:-

Year 2005 2006 2007 2008 2009

Current Ratio

0.81 0.99 1.41 1.12 1.59

The norm for the current ratio in IT industry is 1.5:1. The current ratio of HCLT is almost equal

to 1.19:1, which is less than the norm. On an average, for every rupee of current liability, HCLT

has \` 1.19 of current assets. The current ratio can be better judged if it is studied along with

ratios such as inventory turnover and receivables turnover.

The higher the receivables and inventory turnover, greater the firm's ability to pay its current

liabilities. Generally, a low current ratio indicates the firm's inability to meet its current

obligations. But a high current ratio may represent unnecessary blocking of liquid assets such as

cash and cash equivalents.


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(II) QUICK/ACID RATIO

Quick ratio for HCLT:-

Year 2005 2006 2007 2008 2009

Quick Ratio

0.8 0.98 1.39 1.06 1.71

It indicates whether a firm has enough short-term assets to cover its immediate liabilities without

selling inventory. HCL was less than 1 and could not pay their current liabilities during 2006,

after that its shown improvement and ratio continue to rise.


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(III) CASH RATIO

Cash ratio for HCLT:-

Year 2005 2006 2007 2008 2009

Cash Ratio

0.12 0.09 0.27 0.26 0.52

It can therefore determine if, and how quickly, the company can repay its short-term debt. HCLT

has shown continues improvement in cash ratio.


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LEVERAGE RATIOS

(I) DEBT EQIUITY RATIO

Debt equity ratio for HCLT:-

Year 2005 2006 2007 2008 2009

Debt equity ratio

0.03 0.01 0.01 0.01 0.15

The debt-equity ratio is another leverage ratio that compares a company's total liabilities to its

total shareholders' equity. This is a measurement of how much suppliers, lenders, creditors and

obligors have committed to the company versus what the shareholders have committed.

Average debt equity ratio for HCLT is 0.04 over previous five financial years. Though the this

ratio steeply increased in the recent year but average is very low and it is good for a company to

has only 4% total funds as total debt for the company.
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(II) LONG TERM DEBT EQUITY RATIO

Long term debt equity ratio for HCLT:-

Year 2005 2006 2007 2008 2009

Long term debtequity ratio 0.03 0.01 0.01 0.01 0.04

The long debt-equity ratio is another leverage ratio that compares a company's long term

liabilities to its total shareholders' equity. As we can see the average long term debt equity ratio

for HCLT is 0.01 which is very less and good for a company as the just has 1% of the total funds

of the company as long term debt.Though it increased in the recent year by 4 times, but it is still very low and good for an IT

organization.
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(III) INTEREST COVERAGE RATIO

Interest coverage ratio for HCLT:-

Year 2005 2006 2007 2008 2009

Interest coverageratio 61.43 62.16 68.58 62.07 51.14

It is used to determine how easily a company can pay interest on outstanding debt. When a

company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be

questionable. An interest coverage ratio below 1 indicates the company is not generating

sufficient revenues to satisfy interest expenses. HCLT have high Interest coverage ratio.


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TURNOVER RATIOS

(I) TOTAL ASSETS TURNOVER RATIO

Total assets turnover ratio for HCLT:-

Year 2005 2006 2007 2008 2009

Total assetsturnover ratio 0.5 1.22 1.13 1.51 1.25

As we can see the average total assets turnover ratio for HCLT over 5 financial years is 1.122.

The ratio was increasing from 2005 to 2008 and it dipped in recent year but broadly we can say

that the turnover of HCLT in all services is ` 1.122 over the usage of` 1 of total asset of the

company which can be considered as a good ratio.


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(II) SHORT TERM ASSET TURNOVER RATIO

Short term asset turnover ratio for HCLT:-

Year 2005 2006 2007 2008 2009

Short term assetturnover ratio 2.53 3.31 3.13 3.27 2.73

As we can see the average short term assets turnover ratio for HCLT over 5 financial years is

2.994. The ratio is almost constant over the years, initially increasing from 2005 to 2008 and it

dipped in recent year but broadly we can say that the turnover of HCLT in all services is ` 2.994

over the usage of`

1 of short term asset of the company which can be considered as a good ratio.


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(III) WORKING CAPITAL TURNOVER RATIO

Working capital turnover ratio for HCLT:-

Year 2005 2006 2007 2008 2009

Working capitalturnover ratio -31.86 -0.77 56.75 23.28 166.69

This ratio tries to highlight is how effectively working capital is being used in terms of the

turnover it can help to generate. HCLT management is effectively using working capital from

2008 to 2009.


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(IV) DEBTORS TURNOVER RATIO

Debtors turnover ratio for HCLT:-

Year 2005 2006 2007 2008 2009

Debtors turnoverratio

6.09 6.37 5.55 5.45 3.79

It indicates the number of times average debtors (receivable) are turned over during a year. There

is decline in debtors turnover ratio implies inefficient management of debtors or less liquid

debtors. So we can say that HCLT is not effectively working on their debtors and the ratio is

keep on decreasing as it is not a good sign for any company.


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PROFITABILITY RATIOS

(I) CAPITAL BASED PROFITABILITY

RATIOS(A) RETURN ON CAPITAL EMPLOYED (ROCE)

Return on capital employed ratio for HCLT:-

Year 2005 2006 2007 2008 2009

ROCE (%)

10.63 26.15 22.35 33.08 32.39

ROCE compares earnings with capital invested in the company. HCLT is showing continues

increase in earning with capital invested.


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(II) ASSET BASED PROFITABILITY RATIOS

(A) RETURN ON TOTAL ASSET (ROTA)

Return on capital employed ratio for HCLT:-

Year 2005 2006 2007 2008 2009

ROTA (%)

89.59 79.64 51.61 48.22 52.04

The Return on Assets of a company determines its ability to utilize the Assets employed in the

company efficiently and effectively to earn a good return. The ratio measures the percentage of

profits earned per rupee of Asset and thus is a measure of efficiency of the company in

generating profits on its Assets. HCLT company generates makes 52.04 % return on the Assets

that it employs in its operations.


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(III) SALES BASED PROFITABILITY RATIOS

(A) GROSS PROFIT MARGIN RATIO

Gross profit margin ratio for HCLT:-

Year 2005 2006 2007 2008 2009

Gross profit marginratio (%)

19.97 22.12 24.88 21.86 24.33

The Gross Profit Margin illustrates the profit a company makes after paying off its Cost of

Goods sold (cost of inventory). Gross Profit Margin illustrates to us how efficient the

management is in using its labor and raw materials in the process of production. HCLT have a

high gross profit margin are more liquid and thus have more cash flow to spend on research &development expenses, marketing or investing. Comparing HCLT with its peers like TCS which

have slightly higher operating profit margin.

HCL have continual increase in operating profit margin from Jun 2005 to Jun 2009.


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(B) OPERATINF PROFIT MARGIN RATIO

Operation profit margin ratio for HCLT:-

Year 2005 2006 2007 2008 2009

Operation profitmargin ratio (%)

24.63 26.69 24.86 26.58 29.72

The Operating Profit Margin will illustrate to you how efficiently the managers of a firm are

using business operations to generate profit. The higher the Operating Profit Margin, the better.

This is because a higher Operating Profit Margin shows the company can keep its costs under

control (successful cost accounting). A higher Operating Profit Margin can also mean sales are

increasing faster than costs, and the firm is in a relatively liquid position. HCLT have continual

increase in operating profit margin from Jun 2005 to Jun 2009.


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(C) NET PROFIT MARGIN RATIO

Net profit margin ratio for HCLT:-

Year 2005 2006 2007 2008 2009

Net profit marginratio (%) 22.36 21 29.11 16.68 20.63

The Profit Margin of a company determines its ability to withstand competition and adverse

conditions like rising costs, falling prices or declining sales in the future. The ratio measures the

percentage of profits earned per dollar of sales and thus is a measure of efficiency of the

company. HCLT makes ` 0.20 on every ` 1 of sale.


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MARKET VALUATION RATIOS

(I) EARNING PER SHARE (EPS)

Earnings per share for HCLT:-

Year 2005 2006 2007 2008 2009

EPS

10.31 19.74 16.6 11.72 14.88

It tells how much profit was generated on a per share basis. HCLT have higher growth in 2009

compared to 2008. The average EPS for HCLT over previous five years is ` 14.65 which is good

as the market value of HCLT share is ` 2.


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(II) PRICE EARNING RATIO (P/E)

Price earnings ratio for HCLT:-

Year 2005 2006 2007 2008 2009

P/E

0.19 0.1 0.12 0.17 0.13

Its a valuation ratio of a company's current share price compared to its per-share earnings. There

is decline in P/E ratio from 2008 to 2009; it shows investors have low expectations from earning

growth.


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(III) DIVIDEND PER SHARE (DPS)

Dividend per share for HCLT:-

Year 2005 2006 2007 2008 2009

DPS

16 16 8 9 7

DPS shows how much the shareholders were actually paid by way of dividends. There is decline

by HCLT in paying dividends to share holders.


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(IV) DIVIDEND PAYOUT RATIO

Dividend payout ratio for HCLT:-

Year 2005 2006 2007 2008 2009

Dividend payoutratio 1.55 0.81 0.48 0.77 0.47

It indicates the proportion of earnings that are used to pay dividends to shareholders.

There is reduction in dividends paid and is looked poorly upon by investors, and the stock

price usually depreciates as investors seek other dividend paying stocks .


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RECOMMENDATION

After examining the annual reports of HCLT of previous five years, we can say that HCLT has

grown year by year and has improved it business. Even qualitative analysis suggests that HCLT

has bagged several new projects viz in New Zealand and in Europe and also bagged some

domestic projects and they are planning to expand their business. So it will be a wise decision to

invest in HCLT.

As HCLT is looking good in its IT business and it also looked strong in recession so it is

advisable to invest in HCLT to get good returns and safety in investments.


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REFERENCES

[1] ITAA.org, p30, Accessed March 3, 2008.[2] http://www.abet.org/forms.shtml#For_Computing_Programs_Only

[3]http://www.sigite.org/index.php?option=com_ view=wrapper&Itemid=8.

[4]Gartner Says Worldwide IT Services Revenue Declined 5.3 Percent in 2009, Gartner

Newsroom

[5] Bird, M. (2010). Modern Management Guide to Information Technology. Create Space.

http://harvardbookstore.biz

[6] http://en.wikipedia.org/wiki/HCL_Technologies
http://www.itaa.org/es/docs/Information%20Technology%20Definitions.pdfhttp://www.itaa.org/es/docs/Information%20Technology%20Definitions.pdfhttp://www.gartner.com/it/page.jsp?id=1363713http://www.gartner.com/it/page.jsp?id=1363713http://www.gartner.com/it/page.jsp?id=1363713http://harvardbookstore.biz/http://harvardbookstore.biz/http://harvardbookstore.biz/http://www.gartner.com/it/page.jsp?id=1363713http://www.itaa.org/es/docs/Information%20Technology%20Definitions.pdfhttp://en.wikipedia.org/wiki/File:HCL_Technologies_logo.svg

FA Project Report on HCLT Ltd

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