IT services provider HCL Technologies is likely to report more than 5 percent sequential decline in its profit for the June quarter, but dollar revenue could be increased by more than a percent quarter-on-quarter (QoQ) and cross currency revenue growth could be more than 1.5 percent QoQ.
The stock gained 1.28 percent to close at Rs 1,024.35 on August 6, ahead of the announcement of its earnings for the June quarter.
"We expect dollar revenues to grow 1.2 percent QoQ to $2,305 million supported by 0.5 percent contribution from Strong Bridge acquisition," said ICICI Securities, which expects profit to fall 7 percent and rupee revenue to grow 0.2 percent sequentially.
Kotak Institutional Equities also expects constant currency revenue growth rate of 1.55 percent of which 1 percent will be organic, with the balance attributed to the Strong-Bridge Envision acquisition.
"We forecast a cross-currency headwind of 55 bps. Revenue growth will be impacted by productivity adjustment for select clients in IMS and high base of earlier quarters due to transformation revenues booked from large IMS deals. We have not baked in any revenues from proposed acquisition of select products of IBM due to a delay in closure by a month from the expected date of end-May 2019," said the brokerage which expects profit to fall 9 percent QoQ.
At an operating level, earnings before interest and tax may decline more than 6 percent, and its margin may contract sequentially by triple digits.
Prabhudas Lilladher expects HCL Tech margin to decline by around 150bps QoQ on account of investments undertaken in the digital sector, its people, infrastructure and systems. The same is expected to contract by 126bps QoQ, according to Kotak.
On the guidance front, most brokerages expect the software company to retain its FY20 revenue growth guidance of 14-16 percent revenue, despite a delay in the acquisition by a month.
Kotak said it also expects the company to retain organic revenue growth guidance of 7-9 percent and EBIT margin guidance of 18.5-19.5 percent for FY20.
Key issues to watch out for would be its outlook on margin and revenue growth for FY20, the demand for IMS services, growth in BFSI vertical, amortization carried out for the large IBM deal and revenue growth rate, revenue growth from digital, capital allocation in light of aggressive product acquisitions, M&A strategy etc.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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