Resilience in the Face of Adversity
Perspectives from the CFO
HCL more than weathered a year dominated by the COVID-19 pandemic crisis, reporting strong and in some cases record financial results. Chief Financial Officer Prateek Aggarwal explains how the company was able to show such resilience in such a challenging period.
What is your overall assessment of HCL’s financial performance in FY21?
The numbers speak for themselves. In the midst of a pandemic, HCL was able to support clients in the running of their businesses and digitizing and modernizing their applications and operations. This led to record revenue of ₹ 75,379 Crore (USD 10.17B) representing 6.7 percent year on year growth. EBITDA (Profit before taxes, finance cost, other income, depreciation and amortization) in FY21 was at an all-time high of 27.6 percent, before one-time charge associated with a special bonus to employees, reflecting the quality of the revenue stream. Also, our EBIT (Profit before taxes, finance cost and other income) of 16,165 Crore grew by 16.3 percent year on year.
A particularly gratifying aspect of these results was our reaching the milestone of USD 10B in annual revenue, which we marked with the special appreciation bonus to employees of 10 days equivalent salary and a special interim dividend of ₹ 10 to shareholders.
To what do you attribute that strong performance?
Well, the revenue growth was driven primarily by our Mode 2 businesses, including next-generation technologies such as digital & analytics, cloud native services, cybersecurity, and Internet of Things, as well as by our Mode 3 businesses, such as HCL Software and other products and platforms.
And of course, a special shout-out to my fellow HCLites for standing steady in the face of the COVID-19 pandemic and delivering customer delight and great results without missing a beat!
Given the challenges HCL faced in weathering the crisis, what do you find the most surprising metric?
We had strong operating cash flow generation of ₹ 19,618 Crores, up 47 percent on a year-on-year basis. Those are strong results in a year when the world faced tremendous economic difficulties.
How was HCL able to be so financially resilient during this challenging year?
Let’s start with cash flow. We were probably the first and perhaps the only company among our peers during the pandemic to preemptively set up a significant revolving credit facility with our banks. This gave us access to USD 800M, on top of the ₹ 10,283 Crores (USD 1.36B) in cash we had on hand on 31 March 2020.
We didn’t end up tapping the facility, but the cash was available, had we needed it. We further improved our invoicing and collection processes, reducing our DSO (daily sales outstanding) by four days on a year-on-year basis. We enjoyed good cash generation from our Products and Platforms business segment, as the software business by its nature enjoys negative working capital. Finally, we took advantage of the environment created by the pandemic to go to the international bond markets.
What were the circumstances surrounding the bond issue?
We issued bonds of ₹ 3,656 Crores (USD 500M), with a very attractive coupon rate of 1.375 percent and a yield of 1.58 percent. We were able to do this because of the strong A- rating we had earlier received from S&P. This bond issue, the highest-ever rated bond issue from India, allowed us to retire most of our outstanding debt, locking in all-time low interest rates for the next five years. We followed this with another A- rating from Fitch.
What were other highlights of the year?
Well, year-on-year total shareholder return (TSR) during FY21 hit an all-time high of 128 percent. And this was part of a long-term positive trend, 21.2 percent over the past five years and 24.8 percent over the past ten. HCL also declared a healthy dividend of ₹ 26 for the year, including the special interim dividend of ₹ 10. We also improved our internal controls and governance during the year, overhauling all of our ICFR processes. So, in areas both macro and micro, we made major strides forward in a challenging environment.