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HCL Tech: Q3 Results Preview – PAT may increase ~4 percent QoQ, revenue may grow ~5 percent

Strong quarter expected for IT Services, product platform and ERD businesses but supply side headwinds persist

January 14, 2022 / 07:59 AM IST
HCL Tech | Representative image

HCL Tech | Representative image

 
 
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HCL Technologies Ltd. (HCL Tech), one of the large players in the Indian IT Services industry will declare its third quarter earnings on January 14.

Experts expect the Noida based IT giant to tow the line of growth set by its larger peers and report strong numbers for the quarter on a sequential basis.

The brokerages expect the company to report ~4.0 percent on-quarter growth in consolidated net profit at around Rs 3,400 – 3,500 crore. They forecasted the consolidated revenues to grow by ~5.0 percent on a sequential basis to around 21,500 – 22,000 crore.

The company had registered consolidated profit of Rs 3,977 crore on consolidated revenues of Rs 19,302 crore in the corresponding period of previous financial year.

The company had recorded consolidated profit of Rs 3,264 crore on consolidated revenues of Rs 20,655 crore in the previous quarter of current financial year.

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Brokerage Expectations

Analysts forecast a strong sequential performance from the company after a series of weak quarters in the past.

Topline growth

Kotak Institutional Equities expect robust sequential growth led by continued strength in services and recovery in products business.

“We forecast sequential revenue growth of 3.9 percent in IT services business and 9.5 percent in products. Products growth will be led by seasonal strength and sign ups that were delayed in the previous quarter”, the brokerage said in its report.

The company had given double-digit revenue growth guidance for the year and Kotak expects revenue growth to settle at ~12 percent for the year. It forecasts revenues of Rs 21,701 crore for the quarter with a sequential growth of 3.3 percent and a yearly growth of 12.4 percent.

According to a report from Motilal Oswal, HCL Tech is expected to clock dollar revenues of USD 2,891 million registering a sequential growth of 3.6 percent.

In rupee terms, the brokerage expects a sequential growth of 5.8 percent with revenues at Rs 21,900 crore, which is on-year growth of 13.5 percent at the back of strong traction in IT and Engineering and Research & Development (ERD) businesses.

The products and platforms segment is expected to report a sharp rebound sequentially, driven by seasonal strength.

Emkay Research expects 3.0 percent sequential growth in dollar revenues after factoring in ~80 bps cross-currency headwinds.

It forecasts revenues of Rs 21,562 crore for the quarter at a YOY growth of 11.7 percent and a sequential growth of 4.4 percent.

Margin estimates

Experts expect EBIT (earnings before interest and tax) margins to improve marginally on a sequential basis due to headwinds from wage revisions which will be partially negated by revenue growth and operating efficiencies.

“We forecast EBIT margin to increase sequentially despite 80-100 bps headwind from wage revision. The increase will be led by higher margin in products and operating efficiencies”, Kotak said in its report. It expects EBIT margin to improve by ~25 bps to ~19.5 percent.

Emkay on the other hand is more optimistic about margin improvement and “expect EBIT margins to expand by 100bps on the back of revenue growth, offshore shift and a rebound in product and platform services segment profitability negating the impact of salary hike and supply-side pressures”.

Bottomline

Experts peg the growth in profit after tax in the range of 3 percent to 5 percent on a quarterly basis.

According to Motila Oswal, profit may climb 3.2 percent on a sequential basis to Rs 3,369 crore.

Emkay puts the growth in profit at 5.4 percent sequentially and expects a profit after tax of Rs 3,440 for the quarter.

The brokerage houses India Infoline Securities and Prabhudas Liladhar also expect the profit to grow ~5 percent on-quarter and pegs the profit at Rs 3,436 crore and Rs 3,431 crore respectively.

In focus

Experts advise investors to look for the outlook on large deal activities in the market, especially noting HCL Tech’s higher dependence on large deals for growth. They also suggest that revenue and margin outlook for ERD and the Products Business will be the key, as also the demand outlook for major verticals such as banking, financial services and insurance (BFSI), manufacturing and healthcare.

Update on pricing, timeline of investments in geographical presence & their impact on revenue growth and attrition trends will also be key monitorables.
Gaurav Sharma
first published: Jan 14, 2022 07:56 am

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