After looking at the performance of leading players from auto, banking and pharma sectors in India in the last few articles, let\’s now focus on the IT sector.
Performance of best IT stocks in India in FY21:
HCL Tech Ltd.
HCL Tech is India’s the third largest software services firm by revenue. Headquartered in Noida, HCL tech is a next generation global technology firm that helps business become enterprise of the future with most advanced technologies invented and innovated over decades of extensive research. Founded by industrialist Shiv Nadar, the tech giant has presence in over 50 countries including major tech destinations like the U.S. and the U.K.
It caters to industries from retail and consumer goods to banking and capital markets, from healthcare to aerospace and defense to travel and hospitality.
Let’s look at the stock market performance of HCL in FY21:
HCL On Roll in FY21
While most companies suffered from the onslaught of COVID-19, it was an opportunity in disguise for technology businesses like HCL Tech. The same was reflected in the share price of the company. In FY21, HCL gained exponentially posting 128% returns, while Nifty gained 71%. HCL Tech also beat NIFTY IT, which gained 103% in FY21. Promoter holding remained unchanged at 60.33%.
Throughout the pandemic it stood at the same value, which is a sign of promoters trust in the company. DII’s have extended their base by 1.39% from 9.17% in March 2020 to 10.56% in March 2021. HCL claims to have technology that touches lives of people from different sections. While the company continues to do that, it also touched lives of investors in FY21. This can be validated through an upsurge in public holdings in the company. In March 2021, the public holding rose to 4.97% from 4.09% in March 2020.
A WALK THROUGH FINANCIALS
Story in charts
- India’s third largest software services company’s revenue from operations grew ~7% Y-o-Y basis to Rs. 75,379 crore in FY21 from Rs. 70,676 crore in FY20.
- In Q4FY21, company inked new deals taking its total contract value (TCV) to an all-time high of $3.1 billion. In FY21 the new deal TCV stood at $7.3 billion that is 18% higher from a prior fiscal.
- HCL accorded 19 new large deals in Q4FY21 across industry verticals, including financial services, healthcare, consumer goods and manufacturing. In FY21, its total large deal count stood at 58.
- As illustrated in the segment wise revenue figure, IT and Business services hold the biggest piece of the pie in terms revenue. While the IT and business services segment contributed a ~71%, Engineering and R&D services and Products & Platforms added ~16% and ~14% respectively.
- On account of the positive demand environment and robust deal pipeline, the company is hoping to post a double digit revenue growth in FY22 in terms of currency terms.
- While attrition rate is a major concern across fragmented IT space, HCL tech’s attrition rate fell to 9.9% during Q4FY21 from 10.2% in earlier quarter. The company has plans to hire more than 15,000 entry-level employees globally – India, U.S. Europe, Australia and Sri Lanka.
Infosys is an Indian multinational information technology company that provides business consulting, information technology and outsourcing services. Infosys is the second-largest Indian IT company after Tata Consultancy Services
Performance of Infosys Stock in FY21
In FY21, Infosys gained 121%, while Nifty gained 71%. Infosys not only outperformed the Nifty but also outperformed the Nifty IT index which gave a return on 102% in FY21.
How Infosys Fared in FY21
Key highlights of Infosys for FY21
- 7% YoY growth in revenues at Rs 100,473 crore
- Digital revenues accounted for 48.5% of total revenues, YoY CC growth of 29.4%
- 4% YoY growth in Free Cash Flows (FCF) at Rs 22,020 crore
The COVID-19 pandemic brought a massive change in the way companies in different sectors and regions do business. To stay competitive in this new business and economic environment, many companies accelerated the digitization of their customer and supply-chain interactions as well as their internal operations. Digital adoption has taken a significant leap at both the organizational and industry levels. This has been a blessing in disguise for IT companies like Infosys which caters to diverse verticals like BFSI, Hi tech Media, Life Sciences, Manufacturing, Communications and Retail. Net profits of Infosys grew to Rs 19,455 crore in FY21 from Rs 16,641 crore in FY20.
The road ahead for Infosys
India is one of the most preferred offshoring destinations for IT companies across the world. Emerging technologies now offer an entire new range of opportunities for top IT firms in India. The IT industry is expected to grow to US$ 350 billion by 2025.
With its resilient business structure, multiple long-term contracts with world’s leading brands, global presence and diversified offerings across multiple verticals, Infosys looks well-poised to grab a huge chunk of this big opportunity.
Tata Consultancy Services (TCS)
Tata Consultancy Services (TCS) a division of Tata Sons was established in April 1, 1968 as a management and technology consultancy services to create demand for downstream computer services. F.C. Kohli – a brilliant technocrat was appointed as a General Manager. From winning the first overseas contract in 1971 to the highest ever deal intake in quarter ($9.2 billion), TCS has grown exponentially. India’s largest multinational business group, Tata Group – TCS has over 488,000 of the world’s best-trained consultants in 46 countries. The company realized $22.2 billion in FY21.
TCS On Roll in FY21
While Coronavirus pandemic axed many businesses from most sectors, it was bonanza for companies from the information technology (IT) sector. In FY21, the share price of TCS grew 76% which is 5% higher than NIFTY. However, it could not beat the index NIFTY IT, which gained 103% in the financial year 2021. With the close of FY21, promoters reduced their pledged holding as a result, promoters increased their holdings from 72.05% to 72.19%. As of March 31, 2021 public holding stood at 4.31%.
A WALK THROUGH FINANCIALS
Story in charts
- TCS ended the financial year 2021 on a vibrating note. On the business front, the tech titan weathered the pandemic very well. TCS’s agility, resilience and responsiveness during the crisis enhanced its standing in the market.
- After the initial impact from the pandemic and lockdown-led disruptions, the company swiftly returned to a sharp growth trajectory over the next nine months, and exited the year with an expanded market share, industry-leading profitability and an all-time high order book.
- Despite an acute fall in revenues in Q1FY21, progressively strengthening demand for TCS’ services helped the company clock 164,177 crore in FY21, growing 4.6% over the prior year.
- TCS’ operating profit continued to be industry-leading at 25.9%, an expansion of 1.3% over the prior year.
- Net profit stood at whopping Rs. 33,388 crore, a net margin of 3%. The company announced a final dividend of Rs. 15 for the year, bringing the total dividend for the year to Rs. 38 per share.
- Talking of segment growth, all verticals showed upbeat sequential growth, but a couple continue to lag prior level. Banking Financial Services and Insurance (BFSI) contributed the highest 32.2% revenue in Q4FY21. When the world looked to pharma majors to save humanity from the scourge of disease, Life Science and Healthcare business grew 17.1% in FY21.
- While BFSI and Technology services grew 2.4% and 0.2% respectively, other verticals including Retail & CPG, Manufacturing, Communications & Media and others posted de-growth.
Expansion in Market Share
The global IT market is very fragmented. Hence, the largest provider also has a mid-single digit market share. TCS has a market share of 1.6%, and has significantly outperformed the market, growing at twice the rate of market growth over the last decade. TCS’ geographic footprint covers North America, Latin America, the United Kingdom, Continental Europe, Asia-Pacific, India, and Middle-East and Africa.
In Q4FY21, Business was led by major markets such as Continental Europe (11.7% YoY), North Americas (5.9% YoY) and UK (1% YoY). Other markets grew well: Middle East & Africa (10.6% YoY), India (11.2% YoY), Latin America (1.5% YoY), and Asia Pacific (1.5% YoY). On a full year basis, with the exception of Continental Europe which grew +5.5%, all other markets continue to be in negative territory compared to the prior year.
We trust you gained knowledge from the insights shared in this article on the best IT stocks in India. Our aim is to help investors like you make an informed decision when investing in stocks, exiting from stocks and building a portfolio of fundamentally robust companies. A friendly advice here is, DIY investment is all good but investing with the help of an expert can do wonders for you and make investing a truly rewarding experiencing. Click here for expert help in creating a winning stock portfolio of 20-25 multibagger stocks.