HCL Tech: Acquisitions & Deals to bring Growth

HCL Technologies Ltd is an Indian multinational IT services and consulting company, and also India's 3rd largest IT organization headquartered in Noida, India. HCL Technologies is a next-generation global technology company that helps enterprises reimagine their businesses for the digital age. 

While HCL started off as a hardware organization, manufacturing the country’s first indigenous computers and introducing them to the Indian consumer, it eventually evolved into a more comprehensive software services organization. HCL is, in fact, one of the few global IT companies founded in the 1970s that remains in existence to date.

Through its worldwide network of R&D facilities and co-innovation labs, global delivery capabilities, and over 168,000+ ‘Ideapreneurs’ across 50 countries, HCL delivers holistic services across industry verticals to leading enterprises. This further includes 250 of the Fortune 500 and 650 of the Global 2000.

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(A) HCL Technologies: What is its business?

Revenue Mix as per services segments:

HCL Tech stock research with details of segment wise revenue distribution

(i) IT & Business Services

HCL Technologies stock research with details of digital revenue segment

Offerings of Hybrid Cloud, Digital Workplace, Unified Service Management and Cybersecurity/Governance, and Risk and Compliance group under Digital Foundation, which is the evolution of Infrastructure services. Consulting, Applications, Insights, and IoT form offerings under Digital Business. IT Operations, Managed Cybersecurity Services (CSFC), and Process Operations are the offerings under Digital Operations.

(ii) Engineering and R&D Services

HCL Engineering and R&D Services (ERS) partners with global enterprises in accelerating product development by leveraging the latest technologies, monetizing product services, and providing immersive customer experiences.

1. Product Engineering Services

It covers all existing or new product development services, right from ideation to support. Product Engineering services cover the whole spectrum from Software, Mechanical, Hardware, and VLSI design to industrial design, product benchmarking, and value engineering.

2. Platform Engineering Services

In the platform economy, all the activities for platform building and enablement are covered in this portfolio.

3. Operational Technology Services

The portfolio covers services and solutions to improve manufacturing performance.

4. Next-Gen Engineering

Covers service propositions that cut across Product Engineering, Platform Engineering, and Operational Technology Services, leveraging the latest technology innovations.

(iii) Products & Platforms

HCL Technologies products detail

The Products & Platforms segment comprises the HCL Software Division, Actian software, ERX, and an IP partnership with DXC, which together account for a significant part of the Mode 3 revenue. In addition, Mode 3 portfolio of IP-led offerings include DRYiCE Software, HCL’s leading solution for various enterprises.

(B) Revenue Mix as per user industries

HCL Technologies stock research with details of vertical wise revenue distribution FY21
Telecom & Entertainment includes Telecom, Media and Entertainment Industries
Public Services include Oil & Gas, Energy & Utilities, Travel - Transport - Logistics and Government.

HCL Technologies has well diversified vertical mix. Thus, the company does not depend upon one sector or industry for its revenue. Therefore, the growth of one industry will not have major impact on the overall performance of the company.

  • HCL Tech's exposure to deeply troubled verticals – Energy, Transportation, Travel, Hospitality, and Retail – are lower in comparison to its peers.
  • It has a higher exposure to Financial Services, Technology Services, and Life Sciences, where management anticipates a better outlook.
  • Moreover, amongst its peers, HCL Technologies has highest revenue contribution from Technology services sector.

(C) Geographical Revenue Mix

HCL Technologies stock research with details of geographical revenue distribution

(D) Shareholding Pattern

HCL Technologies stock research with details of shareholding pattern March 2021
HCL Technologies stock research with details of major public and promoter shareholders

(E) Executive Management - HCL Technologies

Mr Shiv Nadar - Founder HCL | Chief Strategy Officer, HCL Technologies | Founder & Chairman, Shiv Nadar Foundation

Shiv Nadar is the Founder of HCL Enterprise. He is also the Chief Strategy Officer of HCL Technologies, a group company and India’s third largest IT services organization. Under his guidance, HCL has continued to ride the waves of the changing IT landscape for over 40 years, remaining at the forefront of every technological revolution since 1976.

Ms Roshni Nadar Malhotra - Executive Director & CEO, HCL Corporation | Chairperson, HCL Technologies

Daughter of Shiv Nadar, Roshni Nadar Malhotra is the CEO and Executive Director HCL Corporation. She is also the Chairperson of HCL Technologies, and the Chairperson of its CSR Board Committee.

Moreover Roshni holds an undergraduate degree in Communications from Northwestern University and an MBA from the Kellogg School of Management.

Mr Shikhar Malhotra - Executive Director, HCL Corporation 

He is husband of Ms Roshni Nadar, Mr Shikhar Malhotra is the Executive Director and also Board Member of HCL Corporation, the holding company for HCL’s operating companies. He is also on the board of HCL Technologies.

Shikhar comes from an entrepreneurial family, raised in Kuwait. His early lessons as an entrepreneur were learnt at his family business and were later sharpened at Babson College in the US, with a specialization in entrepreneurship. Before marrying Ms Roshni Nadar in November 2009, Mr Shikhar Malhotra had the modest business of Distributorship of Honda cars.

C Vijayakumar - President and CEO

C Vijayakumar joined HCL Technologies in 1994 in the founding startup team of Comnet as a senior technical engineer. Over the years, Mr Vijay has held several technology, business and also operational leadership positions at HCL. Moreover he is widely recognized in the industry for his strategic thinking and impeccable execution. He is currently the Chairman of World Economic Forum's IT Governor's Community as well as a Board Member of the US-India Business Council.

(F) Financial Performance Highlights

HCL Technologies stock research with complete financial highlights and analysis
  • The CAGR growth of Net Sales, PAT and cash flows of HCL Technologies Ltd is good over last 10 years.
  • The return and margin ratios remained stable over last 10 years.
  • ROCE of HCL Technologies fell over last 5 years because of huge capital additions. The company majorly did business acquisitions & other IPR acquisitions over these years.
  • There is modest overall growth during FY21. But the management is confident for further growth on account on good deal wins during the year.
  • The cash flow from operating activities as well as free cash flows shown a strong growth. This is despite increase in business acquisitions as well as other IPR acquisitions.

(G) Employee Statistics

Employees are the major assets of IT industry players. IT companies depend upon their employees for growth and profitability. Therefore, efficient management of employees is one of the most essential activities for any IT Company.

HCL Technologies stock research with details of employee count and statistics

The employee attrition rate decreased by more than 5 % which is a good sign. As lesser the employee attrition rate, more beneficial to the company. Also HCL's attrition rate is less than its peer Infosys for the recent quarter. As this reduces training cost for new employees because existing employees already know the working of the company as well as clients’ operations.

HCL Technologies stock research with detail of employee cost as a % of Net Sales
  • Employee cost is the major cost for IT companies. HCL's employee cost as a % of net sales increased in FY20 and FY21.
  • The increase in employee cost is primarily on account of increase in number of employees, change in mix of employees in various geographies and an increase in the average cost per employee due to normal salary revisions.

(H) Nature of Contracts

HCL Technologies stock research with details of revenue contracts on the basis of fixed price or time & material

(I) Client Contribution

HCL Technologies stock research with details of client contribution to revenue FY21 and FY20

Only 13% of revenue of HCL Technologies comes from its top 5 clients thus there is lesser risk of client concentration. The revenue contribution from top 20 clients is also not very high.

(J) Merger and Acquisitions

In order to strengthen their advantage further, the IT companies continuously lookout for skills which can further improve their value addition to customers. Large IT companies many times acquire a small IT company, which has mastered a unique technology/skill, which can add solution to their clients. The great associations which directly relate to the company’s current business lines always add value for the clients because of synergy.

Major Acquisitions of HCL

The company did major capital additions in respect of Patents, trademarks & designs on account of business acquisitions or otherwise, only FY17 onwards. The Y-O-Y addition during FY 17 was 45% , 23% in FY 18, 25% in FY 19 and 56% during FY 20.

HCL Technologies stock research with details of business acquisitions & gross block additions

(1) Acquisitions done in FY 17

(i) Acquisition of Business of Geometric Limited

  • On 1st April 2016, the Company entered into a composite scheme of arrangement and amalgamation for acquisition of the IT enabled engineering services, PLM (‘Product Lifecycle Management’) services and engineering design productivity software tools business of Geometric Ltd.
  • The acquisition aims to help the company to create a unique portfolio of end-to-end engineering and R&D capabilities across the full product lifecycle - hardware, software, manufacturing engineering as well as PLM consulting.
  • The total purchase consideration amounted to Rs 1,267.02 crores

(ii) Butler America Aerospace

  • Further, on 3 January, 2017, a subsidiary of the company through its step down subsidiary HCL America Inc. entered into an agreement to acquire 100% membership interest of Butler America Aerospace, LLC (Butler Aerospace).
  • Butler Aerospace has one design center in India. However the company has acquired the India business of Butler Aerospace at a purchase price of 3.64 crores.

(2) FY18

During the year there has been no material business arrangements. However, company acquired patents and trademarks, other than the business acquisitions.

(3) FY 19

(i) Actian Corporation

  • The Company, through its step-down wholly-owned subsidiary HCL America Inc., entered into a Joint Venture agreement dated April 12, 2018 with Sumeru Equity Partners, which is a a technology and growth-focused private equity firm.
  • The purpose of the JV arrangement was to acquire Actian Corporation, which is a Delaware company. Actian Corporation is also a leader in hybrid data management, cloud integration and analytics solutions–powers insight-driven enterprises around the globe.
  • According to the JV agreement, 80% of the shareholding in the JV company named HCL Technologies SEP Holdings Inc., is held by HCL America Inc., 19.50% is held by Sumeru Equity Partners and the balance 0.5% is held by the CEO of Actian Corporation. Thus the JV Company had a wholly-owned subsidiary, Octavian Acquisition Corp., which ultimately acquired 100% stake in Actian Corporation.

(ii) Other Acquisitions

During the year ended 31 March 2019, the Group made other acquisitions at a total purchase price of Rs 674 crores.

(4) FY 20

(i) Strong-Bridge Holdings, Inc.

  • The Company, through its step-down wholly-owned subsidiary HCL America Inc. acquired Strong-Bridge Holdings, Inc. (doing business as Strong-Bridge Envision or SBE), which is a Delaware company.
  • SBE is a provider of digital transformation strategy consulting, digital / agile program management and also organizational change management. Pursuant to this acquisition, Strong-Bridge Holdings, Inc. and its subsidiaries became the wholly owned step-down subsidiaries of the Company with effect from April 1, 2019 being the date of completion of acquisition.

(ii) IBM Software Products

  • The Company entered into a definitive agreement with IBM Corporation, USA, for the asset purchase of IBM’s seven software products for an aggregate amount of USD 1.8 billion, across three portfolios - Security – AppScan and BigFix; Marketing – Commerce Software, Unica and DX Software and Collaboration Solutions – Notes/Domino and Connections.
  • The consideration for this acquisition amounted to around Rs 14,977 crore.

(iii) Sankalp Semiconductor Private Limited

  • The Company acquired Sankalp Semiconductor Private Limited (“Sankalp”), a company incorporated in India.
  • Sankalp is an advanced technology design services provider offering comprehensive digital & mixed signal SoC (System-on-Chip) services and solutions from concept to prototype, in the semiconductor space. Pursuant to this acquisition, subsequently Sankalp Semiconductor Private Limited and all its subsidiaries became the step-down subsidiaries of the Company with effect from October 10, 2019, being the date of completion of the acquisition.

(5) Acquisitions during FY 21

(i) Cisco's Self Optimizing Network Technology

  • During FY 21 HCL acquired Cisco’s Self-Optimizing Network (SON) technology. The cost of acquisition was US $49,999,000. SON is a multi-vendor multi-technology (MVMT) solution that optimizes the Radio Access Networks (RAN) for 2G-5G.
  • The acquisition will certainly help HCL meet the needs of Tier-1 Communication Service Providers globally by bringing the power of SON’s multi-technology and application support to clients. As it is a step towards enhancing HCL’s telecommunication offerings, SON became a major component in the move towards 5G networks.

(ii) DWS Group

  • HCL announced the closure of its acquisition of the DWS Group (with effect from January 5th,2021). The cost of acquisition was A$1.20 per share. The Total Equity Value pay-out was A$158.2 million after considering a total number of shares at 131.83 million on a fully diluted basis.
  • It is a leading Australian IT, business and management consulting group, which delivers business and technology innovation. In addition it has multiple clients across a spectrum of industry verticals across Australia and New Zealand.

(K) Key Competitors of HCL Technologies


TCS Embarks on a New Brand Direction to Power its Next Horizon of  Transformation-led Growth


Infosys - Media Resources | Infosys Logo | Campus


Wipro | Digital, Technology, Business Solutions

(L) Growth Opportunities

(i) Major Deal wins

The deal wins by the company will certainly bring new opportunities for the company to grow. As for FY 21 Qualified pipeline is slightly higher than that at the end of FY20.

(ii) Leading player in domestic IT services industry; diversified service offerings spread across verticals and geographies

  • HCL is the third largest IT services company by revenues from India. The company has recorded broad-based growth across verticals, service lines and geographies over the years, aided by its strong client relationships and technological capabilities. Targeted acquisitions, especially in the products and platforms business segment, aided the company in further strengthening its business profile.
  • The company provides an array of services including IT infrastructure services, application services, business process outsourcing services, engineering and R&D services. HCL Tech operates in all the key markets of the world through a network of global offices. It has a well-diversified revenue profile across verticals.

(iii) Acquisitions done by HCL

HCL did various acquisitions over last 4-5 years to add growth to the company. This is certainly an opportunity for the company. Moreover, the management believes that these acquisitions will surely add up to the companies revenue.

(iv) Launch of HCL Cloud

In 2019, HCL and Google Cloud announced the launch of HCL’s Google Cloud Business Unit to accelerate enterprise cloud adoption worldwide. To support customers, HCL established three dedicated Google Cloud Native Labs in New York, London and the New Delhi area.

The company plans to tap the US$300 billion cloud opportunity by 2023. The management is confident upon its strong ecosystem partnerships and dedicated business units.

(M) Risks

(i) Exposure to intense competition in the IT industry

Company has to compete with Indian IT majors such as TCS, Infosys and Wipro; and also global players such as IBM, Accenture, and DXC Technology. Though HCL Technologies, with its diversified service and vertical mix along with deeper client mining, will continue to register healthy revenue growth over the medium term; albeit it will remain exposed to intense competition from its peers in the industry.

(ii) Distributed and Virtual Governance Risk

Due to the work from home model, distributed and virtual governance across HCL could lead to ineffective decision making to manage an organization of this size.


 HCL Technologies can 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. As it is the third-largest, listed Indian information technology (IT) services provider in terms of revenue.

Furthermore, the continuous improvement in efficiency parameters, profitable monetization of acquired IP assets and increasing contribution from higher-margin digital contracts will help mitigate the pressure created on operating margins. The industry faces issues of increasing employee costs, investments for enhancing capabilities as well as regulatory compliance. Moreover, HCL Technology has very good opportunities which will certainly help the company to grow in future.

(N) Management Discussion & Concall Highlights - Q4 FY21

(i) Key Wins by HCL Technologies

In FY21, HCL signed a total of 58 new large deals led by industries such as Financial Services, Life Sciences and Healthcare, Telecommunication, Manufacturing and Technology. Moreover, these deals were spread across geographies and industries and are with Fortune500 companies, indicating enough headroom for further client mining. Most deals won are spread over 3-5 years, of which few are integrated across service lines.

(ii) Expansion in International Markets

  • The management alluded to doubling down on sales and marketing in Germany, France, and Australia also. It also intends to expand to emerging markets like Brazil and Spain, and wants to expand its near-shore centers to Canada and Mexico. Moreover investments pertaining to this, along with capability enhancement, should have a 100bp impact on margin.
  • Continuing its expansion in Canada, HCL Further announced the opening of an innovation center in Mississauga, Ontario. From this newest 350 seater global delivery center (GDC), HCL will further deliver advanced technology solutions to its global client base, helping them accelerate their digital transformation journeys.

(iii) Well Balanced Growth

The company's growth was very well balanced across verticals in all the geographies. Further the strong pickup in Q4 in the IT and Business Services is led by great success in digital transformation deals, which is application modernization, vertical-led operating model transformation deals, analytics, cloud migration, cyber security and digital workplace deals.

(iv) Expansion of Investment in UK

  • In May 2021, virtual meeting held between UK Prime Minister Boris Johnson’s with HCL’s CEO C Vijayakumar and Sr. Corp. Vice President, Ashish Kumar Gupta, as part of PM Johnson’s virtual tour to create stronger business ties between the UK and India. During the meeting, Mr C Vijayakumar reaffirmed the company’s commitment to the UK, highlighting HCL’s successful partnerships with many of UK’s largest corporations to assist them on their growth and transformation journeys.
  • The expansion of investment in the United Kingdom includes hiring of 1,000 technology professionals to support its clients in the UK and around the world. The company plans to hire these professionals in the fields of digital transformation, cloud, artificial intelligence and cybersecurity for its London, Greater London and Manchester offices. 

(v) Strategic alliance with Alteryx - Feb 21

HCL announced a global strategic alliance with Alteryx, a leader in analytic process automation, to help companies around the globe succeed in their analytics automation and digital transformation priorities. The initial areas of joint solution focus will include citizen-led advanced analytics, data science, machine learning (ML) and artificial intelligence (AI) to drive initial quick wins and pave the way for continuous innovation.

(vi) Other Highlights

  • Robust growth is expected in Services, led by strong deal momentum in FY21. Moreover management believes that ER&D should also grow in line with IT Services. Further Products and Platforms should witness a softer year, with low single-digit growth. Within this segment, the management decided to discontinue some products.
  • Therefore, the company expects healthy double digit growth in revenues in FY22E mainly led by improved growth in IT & business services and ER&D. In terms of products & platforms HCL expects 75% of products to grow at a healthy pace but the company expects 25% of product to grow at single digit.
  • The management intends to hire 15k employees across geographies.
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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry's Publications.

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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