HCL Technologies Ltd.

About the company

HCL Technologies Limited is an India-based technology company. The Company offers its services and
products through three business segments: IT and Business Services (ITBS), Engineering and R&D
Services (ERS), and HCL Software. ITBS segment provides a portfolio of information technology (IT)
and business services, including application, infrastructure and digital process operations and digital
transformation services enabled by digital and analytics, loT, WoRKs, cloud native and cybersecurity
solutions including products developed within these businesses. ERS segment provides engineering
services and solutions across software, embedded, mechanical, very large-scale integration (VLS) and
platform engineering that support the end-to-end lifecycle of products, including both hardware and
software across diverse industries. HCL Software segment provides modernized software products to
global clients for their technology and industry-specific requirements.

Objective of Financial Management

To determine whether the company is aiming towards profit maximization or wealth maximization,
we need to analyze its financial statements, business strategies, and corporate governance practices.
While there's no single definitive answer, evidence suggests HCL Technologies leans towards wealth
maximization with strong consideration for profitability. Here's an analysis based on available data:

Evidence for Wealth Maximization:

1. Rebranding Efforts for Long Term Sustainability

In the fiscal year 2023, HCL Technologies Limited underwent a significant transformation in its
growth trajectory, marked by a strategic pivot in its corporate identity and brand positioning. The
company, now known as HCLTech, undertook a comprehensive re-evaluation of its purpose and
relaunched its brand identity to align more closely with its strategic objectives. This rebranding
initiative signifies a proactive effort by HCLTech to enhance its competitive positioning and
capture greater market opportunities, thereby driving long-term shareholder value. By
articulating a distinct brand position of "Supercharging Progress™", the company aims to convey
its commitment to accelerating technological advancement and facilitating progress in various
spheres of industry and society.

2. The company’s annual report for 2022-23 shows a 6.6% increase in new deal TCV YoY

A 6.6% increase in new deal Total Contract Value, suggests that HCL Technologies experienced
growth in its business activities and managed to secure a higher value of new contracts
compared to the previous year. An increase in new deal TCV indicates the company's ability to
attract and retain clients, expand its market share, and generate future revenue streams. This
positive trend in new deal TCV aligns with HCL Technologies' strategic objectives of driving
business growth, enhancing revenue, and strengthening its competitive position in the IT
services industry.

3. Consistent increase in Net Worth.

The company’s net worth in fiscal year 2023 amounted to over INR 653 billion , up from about
INR 513 billion in fiscal year 2020. This significant rise reflects the company's robust financial
performance and strategic initiatives and serves as a compelling testament to the company's
commitment to wealth maximization. The notable expansion in net worth underscores HCL
Technologies' ability to generate sustainable value for its shareholders and stakeholders over the
specified period. This increase can be attributed to various factors, including strong revenue
growth, effective cost management, and prudent capital allocation strategies.

4. Accelerated Adoption of Emerging Technologies

The company’s management discussion and analysis report indicates a focus on digital
transformation, which is likely to ensure growth and sustain business continuity.

 Engineering and R&D Services (ERS): HCLTech ERS portfolio includes Product engineering
services, Digital engineering services and Operational technologies. They have been
recognized as the No. 1 player in Everest Group’s 2022 PEAK Matrix® Provider of the Year
Awards for Engineering Services. They are the only service provider ranked amongst the
top two in both Digital and Overall Engineering Services in Zinnov Zones Engineering
R&D Services 2022 study.
 Digital Transformation: HCLSoftware provides technology solutions that transform
experiences for all stakeholders, supporting more than $210 billion of online business
per annum and delivering marketing messages to one-third of the world’s population.
HCL Commerce, HCL Unica and HCL Volt MX are some solutions for this purpose.
 Data, Analytics and Insights: HCLSoftware offers a trusted, flexible, easy-to-use data
platform for better business management and analysis. The company’s Actian Avalanche,
Actian Ingres and Actian Zen are key offerings that provide 5X faster data warehouse on
cloud and operate at a 50% lower TCO (total cost of ownership) than its nearest
competitor.
 AI and Intelligent Automation: HCLSoftware helps clients transform and simplify IT and
business operations and achieve autonomous IT operations using offerings like DRYiCE,
Secure DevOps and Automation Power Suite. This portfolio supports over one million
servers on AIOps and over two million monthly conversational AI interactions across its
customer base.
 Enterprise Security: HCLSoftware’s portfolio includes HCL BigFix and HCL AppScan, which
protect the software that enterprises build or buy by securing from application to
endpoint. The portfolio secures over 100 million endpoints daily, providing customers
with peace of mind that their assets are secure.
Evidence for Profit Maximization:

1. The company’s revenue increased by 18.5% YoY

The 18.5% YoY growth in revenue achieved by HCL Technologies underscores the company's
strong performance, strategic focus on digital transformation, effective client engagement
strategies, and disciplined cost management practices. By capitalizing on market opportunities,
delivering value-added solutions, and maintaining a customer-centric approach, HCL
Technologies continues to drive top-line growth.

2. The operating cash flow had a 4-year CAGR of 19%

A 19% CAGR in operating cash flow over four years indicates a consistent and strong ability of
HCL Technologies to generate cash from its core business operations. Operating cash flow is a key
metric that reflects the cash generated or used by a company's normal business activities,
excluding capital expenditures and financing activities. The increasing trend in operating cash
flow suggests that HCL Technologies has been successful in growing its revenue and managing its
operating expenses effectively.

3. Aggressive Client and Business Acquisition with decreasing employee numbers

Revenue of India's third largest IT services company rose 1.4% over the previous three months to
Rs 26,672 crore in the quarter ended September 2023. The company, however, wasn’t found
lagging in terms of dealmaking. In fact, at $4 billion and 16 new clients, HCLTech’s new deal wins
were at an all-time high in the second quarter.

“Our new bookings… are at an all-time high, driven by a standout mega deal,” HCLTech’s Chief
Executive Officer C Vijayakumar said in a statement. “This achievement underscores out ability to
seize exceptional opportunities in the market and gives us optimism for our medium-term
growth prospects.”

HCLTech’s overall headcount declined by 2,299 in July-September, even as the attrition rate on a
trailing 12-month basis eased to 14.9% from 16.3% in April-June. The total headcount stood at
2,21,139, as on Sept- 30th. The IT firm has skipped salary hikes for mid-level and senior
employees for the full year and deferred it for the rest by one quarter.

These points suggest that HCL Technologies Limited is not only focusing on increasing its profits but
also on creating value for its shareholders, thus aiming towards wealth maximization. The company
clearly acknowledges the importance of profitability. They maintain a strong financial track record,
incentivize employees based on profit, and prioritize operational efficiency. The company's consistent
revenue growth, focus on innovation and customer satisfaction, and robust corporate governance
framework demonstrate its commitment to creating sustainable long-term value for shareholders
and stakeholders.

Therefore, HCL seems to pursue a balanced approach that blends wealth maximization with a strong
focus on profitability. This aligns with the modern view of corporate goals, emphasizing long-term
value creation without neglecting short-term financial performance.
The Principal- Agent Problem

The Principal- Agent Problem also known as agency problem refers to conflicts between the interests
of a company’s management and the interests of its shareholders. While shareholders desire long-
term value maximization, management might prioritize short-term gains or self-interest. Let's analyze
this in context to HCL Technologies.

Onboarding Freshers in 2012

HCL Technologies faced an agency problem related to the onboarding of freshers. Despite its
financial performance and growth, the company was reluctant about onboarding freshers. In
November 2011, the students were offered a job by HCL Technologies during campus placements,
even before they earned their engineering degree. That was then. Over a year later, they were still in
the dark about their joining date. The endless wait was frustrating for several students who passed
out of engineering colleges across the country in 2012. (Around 5,000 offers were made, a number
that HCL wouldn’t confirm or deny.)

The company's reluctance or delay in onboarding fresh recruits, as highlighted in the case, suggests a
potential misalignment of interests between management and employees. While the company may
prioritize financial discipline and margin protection, this approach has led to frustration and
discontent among prospective employees, reflecting a breakdown in communication and trust
between the company and its workforce. Despite its "employees first" philosophy, HCL Technologies
faces challenges related to high attrition rates and employee satisfaction. The discrepancy between
officially reported attrition rates and the actual attrition experienced by the company underscores
potential issues with transparency and data reporting. This discrepancy could erode trust and
confidence in the company's leadership and management practices.

The case also highlights a disconnect between the company's financial performance and its
management strategy. While HCL Technologies has demonstrated impressive revenue growth and
margin improvement, its management decisions regarding employee recruitment and retention have
generated negative publicity and raised questions about its commitment to its workforce. Discontent
among employees and negative publicity could affect the company's reputation, employee morale,
and ultimately, its ability to attract and retain talent, thereby impacting long-term business
performance and shareholder returns.

Positives in regard to resolution of the problem

1. Offering Infrastructure Management Positions: HCL Technologies opened positions in

infrastructure management for campus hires, providing them with an alternative opportunity
for employment within the company. This move aimed to accommodate the skill sets of new
recruits and align their roles with the company's business needs.

2. Transparent Communication: The company communicated openly with prospective

employees about the available positions, salary structures, and expectations regarding
joining dates and job roles. While there were differences in salary between software services
 and infrastructure management roles, HCL Technologies ensured clarity in its communication
to manage expectations effectively.

3. Empowering Employees to Explore Options: By providing prospective employees with

information about alternative job opportunities within the company and allowing them to
explore other options, HCL Technologies empowered individuals to make informed decisions
about their career paths. This approach aimed to mitigate frustration and enable candidates
to pursue opportunities that best suited their interests and aspirations.

4. Focus on Value Creation: HCL Technologies emphasized its commitment to enabling

employees to create value for customers, thereby reinforcing the importance of aligning
employee engagement with business objectives. The company's management philosophy
centered on creating value at the customer interface, underscoring the rationale behind its
approach to employee recruitment and management.

Overall, HCL Technologies addressed the issue of delayed onboarding and employee dissatisfaction
by adopting a transparent and proactive approach to communication, providing alternative job
opportunities, and emphasizing the importance of value creation in driving employee engagement.
These efforts aimed to alleviate concerns among prospective employees and reinforce the company's
commitment to fostering a positive work environment conducive to long-term success and growth.

REFERENCES

https://www.hcltech.com/hcl-annual-report-2023/index.php

https://www.ndtvprofit.com/business/business/markets/hcl-tech-q1-results-profit-jumps-nearly-
threefold-margin-improves

https://www.ndtvprofit.com/markets/hcltech-q2-results-profit-jumps-86-revenue-up-16

https://www.statista.com/statistics/822066/india-net-worth-of-hcl-technologies/

https://www.hcltech.com/hcl-annual-report-2022/document/Management-Discussion-and-
Analysis.pdf

https://www.hcltech.com/hcl-annual-report-2023/pdfs/corporate_governance.pdf

https://www.hcltech.com/hcl-annual-report-2023/pdfs/directors_report.pdf
https://www.hcltech.com/hcl-annual-report-2023/pdfs/financial_stmt.pdf

https://timesofindia.indiatimes.com/business/india-business/how-tcs-infosys-hcl-tech-q2-results-
show-record-billion-dollar-deals-arent-enough/articleshow/104474301.cms

https://economictimes.indiatimes.com/hcl-technologies-ltd/stockreports/reportid-4291.cms

https://economictimes.indiatimes.com/hcl-technologies-ltd/stocks/companyid-4291.cms