HCLTech is bracing for a decline in its revenue for Q1 FY25, primarily due to the pass-back of annual productivity gains and the offshoring of a significant deal. According to an average of 10 estimates compiled by Moneycontrol, the company’s revenue is projected to fall 1 percent quarter-on-quarter to Rs 28,094 crore. The decline in revenue is seen adversely impacting the net profit and EBIT margin of the IT major.
“We foresee a 2 percent revenue drop, driven by the usual productivity gains in annuity deals and the additional impact of offshoring a large deal that ramped up from March 2023,” noted Kotak Institutional Equities in their research report.
HCLTech is slated to release its Q1 FY25 earnings on July 12. Moneycontrol estimates the company’s net profit for the June quarter to decrease by 3.7 percent quarter-on-quarter to Rs 3,838 crore.
Margin Insights
The EBIT margin is projected to be 17.2 percent for the June quarter, showing a decline of 40 basis points sequentially, according to an average of 10 brokerage firms. The anticipated revenue decline is expected to impact the EBIT margin, as highlighted by several analysts.
Axis Securities predicts margin contraction due to higher onsite expenses, while ICICI Securities expects the EBIT margin to remain flat sequentially due to staggered wage hikes and the normalisation of products and platforms margin.
Market Expectations
Analysts are keenly awaiting the management’s commentary on new deal ramp-ups and future visibility. Axis Securities emphasizes the importance of these insights, while InCred Equities looks forward to HCLTech’s outlook on its IT services, ER&D, products business, and capital allocation. Nomura listed cost takeout projects, the banking vertical, and client discretionary spending outlook as key focus areas.
The $2.1 billion mega-deal with Verizon, signed in August 2023, will also be under scrutiny. This deal involves providing primarily managed network services (MNS) for Verizon Business's global enterprise customers.
“We expect investors to focus on the reasons behind weak deal wins (excluding the Verizon contract) over the past four quarters and the implications for future revenues,” said Kotak Institutional Equities.
Despite the challenges, many brokerages expect HCLTech to maintain its FY25 revenue growth guidance of 3-5 percent.
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