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HCL Technologies Q4 Preview: EBITDA margin may take a hit on wage hike, one-time bonus

HCL Technologies shares gained around 2 percent so far in 2021 underperforming Nifty50 (up 2.8 percent) and Nifty IT index (up 6.7 percent).

April 23, 2021 / 08:09 AM IST
Representative Image. (Image: Twitter)

Representative Image. (Image: Twitter)

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India's third-largest IT services company by revenue HCL Technologies is likely to announce quarterly earnings today, April 23. The company is expected to report around 3 percent and 4 percent sequential growth in revenue in constant currency and dollar terms, respectively, for the quarter ended March 2021, brokerages said. The company growth is likely to be boosted by IT and ERD services, and the acquisition of DWS. However, the wage hike and the bonus-hit margin may have a major impact on profitability for the quarter.

"HCL Technologies is expected to report 3.1 percent QoQ revenue growth in constant currency terms mainly led by the acquisition of DWS, easing of stress in ER&D segment, traction in financial services, healthcare and utilities. Further, tailwind from cross-currency revenues is expected to boost dollar revenues (up 4.0 percent QoQ)," said ICICI Direct.

Kotak Institutional Equities also forecasts constant currency sequential revenue growth of 3 percent at the upper end of the guidance band. "We expect DWS acquisition to contribute around 1.1 percent to revenues. Revenue growth will be led by IT and ERD services," the brokerage said.

The brokerages largely expect HCL Technologies to give a forecast for 10-12 percent growth in revenue in terms of constant currency and 20-21 percent margin band for FY22.

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"10-12 percent revenue growth translates into CQGR (compound quarterly growth rate) of 1.6-2.3 percent for the fourth quarter of FY22," Kotak said.

According to brokerages, EBIT margin could see a sharp decline on wage hikes and bonus, which ultimately hit the profitability of the company.

HCL Technologies announced more than Rs 700 crore of one-time bonus to employees to celebrate $10 billion revenue milestone. "This will impact reported EBIT margin by 400 bps. There would be a steep decline in HCL margin on account of one-time bonus, wage hike & lower contribution from product business," said Prabhudas Lilladher.

Emkay Global also expects EBIT margin to decline by around 440bps due to the second round of wage hike and a one-time special bonus. "Profit may decline 26 percent QoQ due to the one-time special bonus to employees and absence of tax reversals," said the brokerage.

Key things to watch out for would be FY22 guidance; deal wins; growth outlook for ER&D and the Products Business; demand outlook for major verticals like BFSI, Manufacturing, and Healthcare; momentum and longevity of digital foundation programs; capital allocation; attrition rates; and acquisition strategy.

HCL Technologies shares gained around 2 percent so far in 2021 underperforming Nifty50 (up 2.8 percent) and Nifty IT index (up 6.7 percent).
Moneycontrol News
first published: Apr 22, 2021 02:17 pm

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