| HCL Technologies Limited | ||
| CCR Rating Reaffirmed and Withdrawn | ||
| Rating Action | ||
| ||
| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its corporate credit rating (CCR) on HCL Technologies Limited (HCL Technologies) at 'CCR AAA/Stable' and has also withdrawn it, on request from the company. The rating action is in line with the policy of CRISIL Ratings on withdrawal of its CCR rating.
The rating reflects the strong market position of HCL Technologies, driven by its presence across diverse verticals and service lines, and the robust financial risk profile and liquidity. These strengths are partially offset by exposure to intense competition in the information technology (IT) industry and volatility in foreign exchange rates. Regulatory changes, including significant protectionist measures (particularly by the US), and sizeable debt-funded acquisitions are key rating sensitivity factors. |
Analytical Approach For arriving at the rating, CRISIL Ratings has combined the business and financial risk profiles of HCL Technologies and its subsidiaries, all engaged in the same business. Goodwill arising out of the acquisition of Axon Group Plc over a 10-year period has also been amortised; adjusted networth was Rs 57,987 crore as on March 31, 2021.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
HCL Technologies is the third-largest, listed Indian IT services provider, in terms of revenue. It has an established and diversified industry-vertical portfolio, with the financial services segment accounting for 21.3% of revenue during fiscal 2022, followed by manufacturing (17.7%), technology & services (17.6%) and other segments such as life sciences & healthcare, retail & consumer packaged goods forming the balance 43.6%.
The company has further strengthened its capabilities in the IT products and platforms segment by acquiring the intellectual property rights of IBM for seven product suites in fiscal 2020. This has facilitated access to a large addressable market across geographies and niche technological capabilities. Over the past two years, the company has been steadily increasing its share of digital revenue (39.3% in fiscal 2022, from 23.4% in fiscal 2018), driven by the Mode 2 and Mode 3 segments. Major acquisitions of Actian and C3i Solutions (in April 2019) and DWS (in September 2020) will further support the business expansion plans with focus on digital solutions.
Continuous improvement in efficiency parameters, profitable monetisation of acquired IP assets and increasing contribution from higher-margin digital contracts will further mitigate the pressure on operating margin, exerted by higher employee cost, investment towards capacity enhancement and regulatory compliance.
Capital structure is marked by a large networth and negligible gearing of over Rs 71,000 crore and 0.06 time, respectively, and cash and cash equivalents of Rs 18,875 crore as on March 31, 2022. Debt protection metrics are also robust, with interest coverage ratio of more than 60 times and net cash accrual to total debt ratio of 3.2 times in fiscal 2022. The company is likely to invest in niche acquisitions to strengthen its existing portfolio in the medium term and they will be largely funded through the cash surplus and healthy accrual.
Weakness:
HCL Technologies competes with Indian IT majors such as TCS, Infosys (rated CRISIL AAA/Stable/ A1+), Cognizant, and Wipro; and global players such as IBM, Accenture, and DXC Technology. Though the company should continue to register healthy revenue growth, backed by its diversified service and vertical mix and deeper client mining, it will remain exposed to intense competition. In order to leverage potential opportunities in global markets and weather volatility over the medium term, domestic IT companies will need to realign their cost structure and improve operating efficiencies and financial flexibility despite regulatory changes and protectionist measures adopted by few geographies. |
Liquidity: Strong Liquidity is driven by cash surplus of Rs 18,875 crore as on March 31, 2022. This, along with expected cash accrual of over Rs 12,000 crore should suffice to cover the maturing debt obligation and moderate capital expenditure plans over the medium term. |
Outlook: Stable CRISIL Ratings believes HCL Technologies will sustain its business risk profile over the medium term, driven by healthy revenue growth across segments, expanding customer base and timely execution of large deals. Furthermore, financial risk profile will continue to be backed by strong cash generating ability, robust debt protection metrics and cash surplus. |
Rating Sensitivity factors Downward Factors:
|
About the Company HCL Technologies is a leading Indian IT service provider, offering enterprise application services, engineering, research and development, custom applications, remote infrastructure management, and business process outsourcing. The company caters to various industry verticals including financial services, manufacturing, telecom, retail, life sciences, media and entertainment, and energy and utilities.
For the fiscal ending March 31, 2022, the company reported a profit after tax of Rs 13,523 crore (Rs 11,169 crore a year before), on net revenue of Rs 85,651 crore (Rs 75,379 crore). |
Key Financial Indicators
|
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
|
Annexure – List of entities consolidated
|
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
|