HCL Technologies Transforming Digitally

PI SQUARE INVESTMENTS

A 12 Year Growth Story

Strictly confidential and for private circulation only. 2

HCL Technologies 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 CAGR%Price 46 91 123 119 194 374 461 407 437 485 544 437 983

Market Cap 12447 24769 33984 33015 54083 104759 129500 114828 124410 134761 147424 118578 255247 28.6%

Growth -25.5% 99.0% 37.2% -2.9% 63.8% 93.7% 23.6% -11.3% 8.3% 8.3% 9.4% -19.6% 115.3%

Trailing CAGR 28.6% 23.6% 22.3% 25.5% 21.4% 13.6% 12.0% 17.3% 19.7% 23.7% 31.6% 115.3%

Revenue 10229 12136 15730 20831 25581 32144 36701 31136 47568 50569 60427 70676 75379 18.1%

Growth 35.3% 18.6% 29.6% 32.4% 22.8% 25.7% 14.2% -15.2% 52.8% 6.3% 19.5% 17.0% 6.7%

Trailing CAGR 18.1% 18.1% 17.0% 15.4% 14.5% 12.9% 12.7% 19.3% 12.2% 14.2% 11.7% 6.7%

PAT 1320 1259 1647 2423 4040 6510 7317 5602 8606 8721 10120 11057 11145 19.5%

Growth 25.5% -4.6% 30.8% 47.1% 66.8% 61.1% 12.4% -23.4% 53.6% 1.3% 16.0% 9.3% 0.8%

Trailing CAGR 19.5% 21.9% 21.1% 18.5% 13.5% 8.0% 7.3% 14.7% 6.7% 8.5% 4.9% 0.8%

PAT Margin 12.9% 10.4% 10.5% 11.6% 15.8% 20.2% 19.9% 17.9% 18% 17.2% 16.7% 15.6% 14.8%

P/E 9.4 19.7 20.6 13.6 13.4 16.1 17.7 20.5 14.5 15.5 14.6 10.7 23.9

ROE 30.3% 23.2% 24.3% 28.5% 35.9% 40.3% 33.6% 21.7% 28.5% 25.1% 26.0% 23.8% 18.6%

CFO/Revenue 10.9% 14.8% 11.2% 12.3% 17.6% 20.1% 15.1% 12.3% 18.9% 16.5% 14.8% 18.9% 26.0%

Book Value 18 22 27 35 46 69 86 97 116 131 153 189 221 23.5%

Growth 18.8% 27.1% 20.6% 27.7% 34.5% 48.7% 24.1% 13.1% 19.2% 13.2% 16.6% 23.7% 17.2%

Trailing CAGR 23.5% 23.1% 23.4% 22.9% 21.6% 18.1% 17.1% 17.9% 17.6% 19.1% 20.4% 17.2%Note: All figures In INR Crores. Price data as on fiscal year end (March)


Leading The Pack


TCS21X

Wipro6X

HCL Tech36X

Infosys7X

• HCL Tech has given a return of 36x on its stock since 2009

• In comparison to its peer set mentioned above, HCL Tech has given the best price return on an investment held since 2009

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4000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

HCL Tech TCS Infosys Wipro

Source: Ace Equity, Pi Square ResearchPrice data as on fiscal year end (March)


Valuation Reflected By P/E Ratio Over The Years


• In the last decade, HCL Tech was available at a low P/E of 9.4x in 2009

• HCL Tech’s PE increased 224% since 2009 to reach 30.5x in 2021

9.4

23.9

31.1

20.8 22.3

17.920.0

18.7 18.1 18.6 18.5

13.2

30.5

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Source: Ace Equity, Pi Square ResearchData as on fiscal year end (March)

PI SQUARE INVESTMENTS Strictly confidential and for private circulation only. 5

Nifty IT10X

HCL Tech36X

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2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Nifty IT v/s HCL Tech

NIFTY IT HCL Tech

• In the last decade, India has emerged as an IT hub for the software companies of the worldand Indian software companies have taken prominent positions globally. India has becomethe world’s largest sourcing destination. Online retailing, cloud computing and e-commerceare all contributing to the speedy growth of the industry with the rate of growth for 2019-20being approximately 10%

• New technologies used in telemedicine and remote monitoring are expanding and boostingthe demand in the digital economy. The rollout of 5G communication technology, growingadoption of AI, Big Data analytics, cloud computing and IoT will expand the size of industry.Companies are establishing their centers in tier II and tier III cities to enhance the growth andreduce the existing disparities

• Leaders of more than a thousand global enterprises across the US, Europe, and otherlocations have realized India's potential and have set up their own IT or R&D centers

• The current wave of Indian software entrepreneurs is focusing on building platforms andproducts for Indian and global markets. There are more than 7,000 tech startups in Indiacurrently and 18 unicorns

• The next generation of Indian software companies is helping millions of small and mediumbusinesses and individual workers such as cab drivers and delivery personnel move into theformal economy

• In terms of revenue and foreign exchange, the sector is currently the largest forex earnerfrom exports and accounts for over 25% of the country's total exports

India’s IT Industry Growth

Source: NSE, Pi Square Research


6%6%

6.4%

7.5%8.0% 8.1%

7.7%

9.0% 9.0%

7.9% 7.8% 7.7%

5%

6%

7%

8%

9%

10%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

IT Industry’s share in India’s GDP

Source: Ministry of Commerce & Industry (GOI), Pi Square Research

67% 74%88%

101% 108%118%

146% 143%154%

167%181%

191%

5%

55%

105%

155%

205%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Market size of India’s IT Industry

• In 1972, Government of India formulated a new software scheme and allowed hardwareimport and export of software which is considered the first breakpoint in the history of theIndian IT industry

• In 1986 the government brought a liberalization policy for the IT industry which de-licensedhardware import and encouraged duty-free export. Further, due to liberalization in 1991and opening of the Indian economy for foreign investment, intensified competition in theindustry which resulted in standardization and productivity improvement

• The Information Technology Act of 2000, National Broadband Policy of 2004 and SpecialEconomic Zone (SEZ) Act of 2005 gave a boost to the IT industry and resulted in anincrease in the number of domestic and foreign software/IT companies in the country

• The majority of global corporations are sourcing IT-ITES from the Indian IT industry,accounting for approximately 55% of the global service sourcing market (US$200-250billion) in 2019-20. The revenue is further expected to grow at an accelerating growth rateto reach US$ 350 billion by 2025

• On the back of thousands of IT services companies that were built over the last threedecades, the industry has generated US$177 billion in revenue and more than US$135billion in exports in FY 2018-2019.

India’s IT Industry Growth


HCL’s competitive landscape

Source: Ace Equity, Pi Square Research

31% 32%28%

34%

21%

34%

21%24%

0%

10%

20%

30%

40%

HCL Tech Infosys TCS Wipro

Sales & PAT (2006-2009)

Sales PAT

4.13

23.40

11.15

4.71

0

5

10

15

20

25


P/E & D/E (2006-2009)

P/E

30%38%

52%

33%

16%27%

22%17%

0%

20%

40%

60%


RoE & PAT Margin (2006-2009)

RoE PAT Margin

• Between 2006 and 2009 HCL Tech can be seen gearing up for the growth spurt

• At the time HCL Tech was at par with its peers in terms of its revenue and netprofit surprisingly enough it had the lowest P/E when compared with its peers

• HCL Tech had 30% RoE and 16% PAT margin during 2006-2009


One of The Early Indian IT Giant


• Founded in 1976, HCL Tech is one of India's original IT garage start-ups, a pioneer of modern computing it is a global transformationalenterprise today

• Since its IPO in the year 1999, the company has had the philosophy of ‘Employees First, Customer Second’ which has empowered theirworkforce to create a real value for the customers

• Struggling to maintain a competitive stance in consulting, HCL Tech acquired an UK based SAP Consulting company Axon inDecember, 2008. The acquisition of Axon provided HCL the capability to provide high-end service especially in the consulting domainand move up the value chain to create one of the largest SAP global partner in the world over the years

• In the years following 2011 HCL Tech implemented its ‘go to market’ strategy and was able to successfully position itself as a marketleader in IMS and a credible position in ADM making it possible to bid for larger projects

• The Recession of 2010 was a blessing in disguise for HCL Tech as it acquired new clients and invested aggressively in SG&A and lateralswhile also venturing into new geographies and business verticals

• In early 2014, HCL Tech took on a significant number of contracts involving rebadging, which the company aimed to move to lower-cost offshore locations. During the same time, HCL Tech won 10 transformational engagements with TCV > US$1bn

• In 2015, HCL Tech began de-focusing on certain government-oriented large system Integration projects in India while continuing itsfocus on global opportunities

• With a focus on modernizing the back-end of digital projects, ‘BeyondDigital’ program was launched in 2015. Digitalization efforts wasfocused in the US, Europe, Australia and New Zealand regionally, and in BFSI, Telecom, M&E, Retail and CPG vertically

1976

2010

2015


Exploring New Areas of Growth


• Between 2017 and 2018, HCL Tech bid for contracts aggressively and the blended margins were lower than its peers which led to lowervaluations for the company

• In 2018 HCL Tech entered into IP partnerships around areas of remote management and provisioning software. Overall, investment in the IPpartnership remained in the range of $1.1-1.2bn. A major part of this investment had been used for the extension of its existing IP partnershipwith IBM, ~USD 50mn had gone into the IP partnership with DXC

• From 2016, HCL Tech became known for its dominance in maintaining computers and data centers and the company had seen growth declinefrom its core business over 2016 and 2018. Slow revenue growth in its core business was the primary reason for the company’s plans to moveaway from a people-led model to a company on offering solutions using IP platforms

• In 2018, HCL Tech’s old infrastructure maintenance contracts were getting squeezed, as clients shifted to cloud computing offered by MicrosoftAzure and Amazon’s AWS. Although, it had witnessed strong traction for its digital services driven by Mode2 and Mode3 services, coupled with alarge number of IP partnerships

• In 2020, HCL Tech built up its capabilities in UX design and had a strong presence in data science and engineering. HCL Tech has high skewtowards IMS, which now gains from cloud, cybersecurity, networks and Work from Home enablement demand

• HCL Tech has become one of the top 3 ER&D companies globally and its IT services business has improved in quality and is not overly reliant onIMS but better-rounded

• Today, HCL Tech’s ecosystem consists of close to 100 companies in various technology areas and it has formed go-to-market alliances,specialist partnerships for niche technologies, and teaming partnerships for specific customers

2017

2020


Go To Market Framework


Vertical market-led sales organization for IT and Business Services has contributed to HCL Tech’s stellar financial performance over the last decade

Using domain proficiency andtechnological expertise to help clients inadopting digital technologies to meetchanging consumer behavior and settingnew standards for customer experience

Focus on using digital technologies toalleviate the burden on hospitals, delays inclinical trials, reduction of workloads such aselective surgeries and medical testing, andthe scarcity of R&D resources

Creating smart and scalable next-generation supply chain solutions tohelp manufacturing companies reshapetheir business strategies and convertpossibilities to reality

Financial Services Life Sciences & Healthcare ManufacturingHelping clients in creating digital platform toenable no-contact home deliveries, buildingnext-generation digital platform and resolvingoperational challenges through IoT-enabledSmart Shelf Automation System

Retail & Consumer Packaged Goods

Public Services

Providing solutions spanning remote work,complex upstream engineering and customer-responsive business tools. Leveraging human-centered design led platforms to help companiesgenerate exponential change in their businesssystems to reprioritize innovation

Technology

Servicing most of the leading technologiescompanies in the world in several ways tohelp them navigate the operating modeldisruption for the various industries theyserve as well as be at the forefront ofchanging consumer behaviors

Telecom, Media & Entertainment

Driving next-generation experiences andnew revenue opportunities through keytechnologies like 5G, artificial intelligence,internet of things (IoT), analytics,blockchain and mixed reality (AR/VR)


Growth Strategy For Digital Age


Mode 1

• Leveraging the current business and IT landscape by consolidating a company’s existingcore and unearthing new ways to enhance that core with new technologies

• The services offer clients a leadership position and enhance the business competenciesfor their core business processes, products and services through the highest level ofreliability and consistency through extreme automation, efficient delivery andoperational agility

Mode 2

• Provides scaled digital transformation frameworks that help enterprise clients buildrobust new-age capabilities and pivot to new business models

• The set of services helps enterprises advance digitally through experience-centric,insight-based, outcome-oriented integrated offerings leveraging new technologies

Mode 3

• Creating innovative IP by leveraging an ecosystem model through strategicpartnerships, carve-outs and co-innovation programs

• Taking advantage of specific next-generation opportunities and enabling enterpriseclients to be future-ready through both internal and external IP creation

Source: Company


Striking Growth Trends of The Evolving HCL Technologies


Brand value has seen a rise of 333% in valuation since 2012

12,447

2,55,247

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2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Market Cap has grown at a CAGR of 29% in the last 12 years Top global strategic partnerships in 2021

Robust addition of new clients across categories

0100

200300400500600700800900

FY17 FY18 FY19 FY20 FY21

$100+ Mn

$50+ Mn

$10+ Mn

$5+ Mn

$1+ Mn

2012 2015 2016 2017 2018 2019 2020 2021

$ 1.227 bn

$ 5.524 bn

Source: Company, Pi Square Research

*Data available 2012 onwards *Data available 2017 onwards

Data as on fiscal year end (March)


The Backbone of HCL’s Growth


81%

62%

13%22%

6%16%

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80%

100%

2017 2018 2019 2020 2021Mode 1 Mode 2 Mode 3

Revenue contribution shifting from core services to digital services

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2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Revenue per employee has grown at a 1.66x since 2009

• HCL Tech has increasingly hired new employees, India’sdigitally skilled pool has grown over the period andaccounted for around 75% of global digital talent

• HCL Tech’s Revenue per employee has grown at 1.66x since2009

• Since the launch of its ‘BeyonDigital’ program in 2015, HCL Tech has madecontinuous efforts to shift its business model from its core services to newaccelerating services

• Mode 1 contribution to revenue was 62% in 2021 compared to 81% in 2017,a drop of ~20% in 5 years. At the same time, contribution to revenue fromMode 2 and 3 increased by ~10% each over the 5 year period

• Revenue from Mode 1 grew at 2%, Mode 2 grew at 20% and Mode 3 grewat 32% from 2017-2021

Source: Company, Pi Square ResearchData as on fiscal year end (March)


The Backbone of HCL’s Growth


Significant revenue contribution from global countries

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70%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

America Europe India ROW

-40

-20

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80

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Commendable growth witnessed under the leadership of Mr. Shiv Nadar

Sales Growth%PAT Growth% • Under the leadership of Shiv Nadar, HCL Tech has transformed

itself from a traditional services offering company to a digitallytransformed company offering ER&D, IoT and next gen services

• HCL Tech’s sales grew at 18% and PAT grew at 19% from 2009-2021

• America being a major country for IT industry, HCL Tech hasalways witnessed significant revenues coming in from America

• In 2009 revenue contribution from America was 54% whichhas increased to 63% in 2021

• Europe is other major contributor to HCL Tech’s revenue,contributing 29%

Source: Company, Pi Square ResearchData as on fiscal year end (March)


Building Future Technology


• Working with its own ecosystem of QC pioneers, HCL is helping clients identifyand implement ways quantum computing can help them with their mostpressing challenges

• Quantum computing holds tremendous potential for industries and society inareas ranging from finance to drug discovery

• HCL developed an augmented reality application for a leading Germanautomobile manufacturer to provide a virtual real-car experience to potentialcustomers, allowing them to feel what the car is like in terms of controls,gadgets, and the latest technology

• HCL is fostering the immersive banking experience for global bank clients bydeploying a concurrent, three-point spotlight on the existing core of a bank’sbusiness, new growth areas, as well as the ecosystems of the future

• Data will enable banks to provide recommendations and, with customers’consent, take actions on their behalf, thereby enabling a ubiquitous bankingexperience that is hyper-personalized, hyper-connected, and hyper-scaled.

• Working with partners, HCL has developed an innovative solution that allowsclients to conduct remote clinical trials with a core data platform and relatedservices.

• Enabling customers to continue the clinical trial process in periods of socialdistancing or if they are unable to travel to a medical facility.

• It employs ‘direct to patient’ interaction technology, leveraging wearables, andhome-based physiological devices

• Being a partner of Cricket Australia led HCL through its start-up innovationsystem to a sensor-based solution that fits onto cricketing gear and recordsmovement during play

• SmartCricket feeds the data into a cloud-based analytics engine that identifiesways to improve the player’s technique and overall game

• The solution is being explored by other sports, such as football, where anational professional football association is considering similar movement-based technology to improve players’ performance

Quantum Computing

No-Contact Car Buying Experience

Immersive Banking

Decentralized Clinical Trials

Smart Sports

HCL Tech has 225 delivery centres and 58 innovation labs globally through which it develops game-changing technology solutions together with its partners


Source: NSE, Pi Square Research

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HCL Tech CNX 500

CAGR 35% 15%

Return 36x 4x

HCL Tech36X

CNX 5004X

9x Higher Return Than CNX 500 Since 2009

Data as on fiscal year end (March)


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HCL Technologies Transforming Digitally

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