HCL Technologies, the country's third largest IT company, is expected to report double-digit sequential growth in the September quarter profit, driven by corporate tax rate cut as well as better revenue growth from the IBM deal and strong operational income.
According to brokerages, profit growth in Q2 is likely to be in the range of 12-20 percent compared to June quarter and rupee revenue may increase around seven percent QoQ. They expect around six percent constant currency revenue growth with inorganic growth of over five percent after the buying of select IBM products.
"We expect constant-currency revenue growth rate of 5.7 percent, of which 0.7 percent will be organic with the balance contribution from completion of acquisition of select IBM products. We expect muted organic revenue growth due to transformation revenues booked from large infrastructure management service deals," said Kotak Institutional Equities, which sees 12.6 percent QoQ increase in profit and 6.6 percent growth in rupee revenue.
Also read: HCL Tech climbs 3% ahead of Q2 results
PhillipCapital expects a similar growth rate in revenue while Motilal Oswal sees revenue growing by 6.8 percent QoQ in constant currency terms, with a percent contribution from organic traction and 5.9 percent from incremental revenue of the IBM IP acquisition.
The software company is likely to retain its full-year revenue growth guidance at 14-16 percent (8-10 percent organic) and margin at 18.5-19.5 percent.
At the operating level, earnings before interest and tax (EBIT) is expected to increase to 18-20 percent and margin is likely to head towards the 18.5-19.5 range again. EBIT margin in June quarter, at 17.1 percent, was impacted by costs associated with infrastructure creation for consummation of select products acquired from IBM.
"We expect margin to expand by 181 bps QoQ due to benefit of INR depreciation, visa cost tailwind, wage hike absorption and absence of IBM deal translation cost," Prabhudas Lilladher said.
Key things to watch out for would be update on further plans for the products and platform business, digital revenue growth, commentary about growth in IMS and engineering and R&D services businesses, outlook on margin and revenue growth for H2 FY20, and growth in the BFSI vertical.
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