HCL Tech Q1 Preview: Revenue Growth May Be At 2.9%, PAT Likely To See Decline

IT major HCL Technologies (HCLT), which is scheduled to announce its financial results for April-June 2022 on Tuesday (July 12), is expected to post revenue growth of 2.9 per cent quarter-on-quarter on a constant currency basis for the quarter even as strong revenue growth is offset by productivity commitments, whereas its profit after tax (PAT) is likely to decline 7.9 per cent, according to brokerage firms.

“We expect 1.4 per cent q-q dollar revenue growth (2.9 per cent q-q in constant currency) as strong revenue growth is offset by productivity commitments,” according to a report by brokerage firm BNP Paribas. It added that the company might maintain its FY23 guidance of 12-14 per cent constant currency revenue growth.

It added that among those key watch out for are: details on new disclosures for the product business, FY23 revenue and margin outlook, risk on demand/outlook from macro headwinds, outlook on Engineering Research & Development, products and platforms vertical’s growth guidance and turnaround progress, Mode 1 and Mode 3 performance, large deal wins and pipeline.

ICICI Securities in its report said, “We expect muted performance from HCL Tech in a seasonally weak quarter… On account of 60 bps (basis points) cross-currency headwinds, we expect the company to report 1.4 per cent quarter-on-quarter growth in dollar term. Rupee revenues are expected to report revenue growth of 3.7 per cent q-o-q.”

It expects P&P (products and platforms) business to report a single-digit decline, while IT services and ER&D (engineering and R&D) services to post a modest 2-2.5 per cent quarterly growth on a constant currency basis.

The report also said EBIT (earnings before interest and tax) margins for the quarter are expected to contract 90 basis points q-o-q, due to an increase in retention costs as well as increase in travel costs. “PAT is expected to decline 7.9 per cent q-o-q. Investor interest this time will be any change in revenue growth guidance of 12-14 per cent in CC for FY23E and 18-20 per cent EBIT margin band.”

BNP Paribas said, “We model a 9-bp contraction in EBIT margin q-o-q at 17.9 per cent as the company continues to make incremental investments and faces cost pressures. We expect HCLT to maintain its FY23 guidance of 12-14 per cent CC revenue growth and EBIT margin of 18-20 per cent.”

On the entire IT sector, it said that in a weakening demand environment, it sees large-scale companies, which are strategic vendors to their customers and have a better ability to manage cost, to outperform.

“Accordingly, our top picks are Infosys and TCS. We are building in a gradual moderation in IT demand and accordingly cut our FY23-25E USD revenue growth by 0-4.5 per cent and margin estimates by 0-150 bp. We also raise our WACC assumptions to reflect the higher cost of equity. This results in our FY23-25E EPS cuts by 0-16 per cent and TP cuts by 5.9-42.1 per cent,” BNP Paribas added.

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