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Last Updated : Jul 16, 2020 03:28 PM IST | Source: Moneycontrol.com

HCL Tech Q1 preview: Profit may decline 15-18% sequentially

Given the fear of second wave of lockdowns, brokerages feel HCL Tech may avoid giving full-year guidance.

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HCL Technologies, the country's third largest IT services company by market-cap, is expected to report double-digit decline in Q1FY21 profit impacted by lower revenue and operating income following COVID-19-led full or partial lockdown across the globe.

According to brokerage houses, decline in profit for the June quarter could be in the range of 15-18 percent compared to the previous quarter, while constant currency revenue may decline around 8 percent sequentially with cross currency headwind of around 20-40 bps QoQ, which could be dented by ERD and BPO segments.

"We expect constant currency revenue to decline by 7.8 percent QoQ and cross-currency headwinds of around 20 bps. Hence, USD revenue is likely to decline by 8 percent QoQ. Revenue would be affected owing to ramp-down of projects in asset heavy industries in ERD and supply-side impact in both ERD and BPO segments," said Sharekhan which sees profit decline of 14.6 percent QoQ.


Kotak Institutional Equities, which also expects sharp sequential revenue decline of 7.8 percent and cross-currency headwind of 20 bps QoQ, forecasts sequential revenue decline of 11.8 percent in constant currency in ERD (engineering and R&D services), 6.3 percent in IT services and 11.1 percent in products.

Given the fear of second wave of lockdowns, brokerages feel HCL Technologies may avoid giving full-year guidance.

"We do not expect the company to resume annual guidance. However, the company may retain its earlier commentary on stabilisation in September quarter and growth in second half of FY21," said Kotak Institutional Equities.

Sharekhan also does not expect HCL Tech would resume FY21 revenue growth guidance given possibilities of second wave of lockdowns; but feels if the company provides revenue growth guidance for FY21, it could be in the range -2 percent and -5 percent.

Operating margin for the quarter could see a decline of 150-250 bps compared to previous quarter due to lower revenue and pricing pressure.

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"EBIT margin is expected to decline by 198 bps QoQ despite rupee depreciation, lower traveling expenses, and cut in variable compensations, owing to lower revenue, lower pricing, and decline in utlisation," said Sharekhan, while Centrum expects EBIT margin to decline by 170bps QoQ with headwinds from weak growth partially negated by tailwinds from INR depreciation.

Key things to watch out for would be - outlook on demand environment, commentary on external environment, FY21 guidance, if any, outlook on products business, pricing pressure, deal pipeline, DSO days, acquisition strategy, if any.
First Published on Jul 16, 2020 03:28 pm