IT services company HCL Technologies on May 7 is expected to report around 4 percent sequential decline in profit, partly due to margin pressure at operating level, higher tax rate and forex loss.
Revenue in rupee terms is seen rising in the range of 2.2-2.5 percent over the previous quarter, while dollar revenue sequential growth could be around 0.7-0.9 percent with constant currency growth over a percent QoQ in the quarter ended March 2020.
As per the company's statement on COVID-19, the company expects a minimal impact on its business for Q4FY20. Its FY20 revenue growth guidance was at 16.5-17 percent, which implies 0.3-2 percent sequential revenue growth guidance for Q4FY20.
Within tier-I IT companies, HCL Tech would lead the pack in terms of revenue growth given lower exposure to the impacted verticals, Sharekhan said.
Taking into account management commentary on limited impact of COVID-19 in Q1FY21 and bookings on track for this quarter, ICICI Direct expects dollar revenues to grow 0.9 percent QoQ. "Rupee revenues are expected to grow 2.5 percent QoQ."
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Dolat Capital also expects 0.9 percent dollar revenue growth and 2.4 percent rupee revenue growth. "We expect constant currency revenue growth of about 1.4 percent QoQ in Q4FY20," it said, adding profit is expected to decline owing to higher forex losses in the quarter and normalization in effective tax rate in Q4.
Most brokerages raised doubts over the announcement of FY21 guidance given the lockdown in major parts of the world to limit the spread of COVID-19. According to them, if the company releases the full-year revenue growth guidance then the range could be more than normal at around 2 percent and also there could be a widening of margin guidance band.
"We expect HCL Tech might not provide FY2021E revenue growth guidance owing to macro uncertainties; if the company provides revenue growth guidance for FY21, we expect the range would be higher than normal at 1-2 percent," Sharekhan said.
Kotak Institutional Equities said more than the guidance, assumptions would matter, especially on the timing of revenue growth recovery after a likely difficult June 2020 quarter. "We expect HCL to guide for 18-20 percent EBIT margin guidance band for FY21."
Brokerages expect some pressure on EBIT margin despite rupee depreciation, due to lower billing and decline in utlisation.
The company indicated strong order bookings in its COVID-19 statement.
Hence, "we expect strong order bookings. HCL announced a few large deals at the beginning of the quarter from Fonterra, Stanley Black & Decker and UPM," Kotak said.
Key things to watch out for would be annual revenue and margin guidance in the midst of ongoing crisis; impact on IP business considering potential recession across the globe; outlook on-demand environment in IMS and ERD businesses; margin trajectory given pricing pressure and bargain from large enterprises due to rupee depreciation; (5) commentary on progress of Mode-2 and Mode-3 services; and impact on deal pipeline amid lockdown & work from home policy.
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