HCL Technologies is expected to report steady earnings for the quarter ended September 2018, brokerage firms said. The company will declare its results on October 23.
The stock price rallied 17 percent during the quarter ended September 2018 and 8 percent year-to-date.
Brokerage houses expect sequential revenue growth in the range of 2.5-3.7 percent in constant currency (CC) terms. Average dollar revenue growth is expected to be more than 1.5 percent QoQ, they said.
Phillip Capital sees CC revenue growth of 3.5 percent QoQ (organic CC growth of 1.8 percent) and negative cross-currency impact of 110bps. Actian and H&D acquisitions are expected to contribute $22 million and $8 million towards the revenue respectively, it feels.
Emkay expects CC growth of 3 percent QoQ and 140bps cross-currency headwinds leading to 1.6 percent growth in US dollar terms while Prabhudas Lilladher expects HCL Tech to report 3.2 percent QoQ CC growth (2.1 percent organic and rest owing to Actian acquisition and revenue from new IP deal signed in Q1FY19).
Seasonal softness in products business will weigh on organic growth for the company, the research house said, adding cross-currency would be a headwind of around 150bps for Q2FY19; hence, US dellar revenue growth would be 1.7 percent QoQ.
Profit
There is no consensus among brokerage firms over HCL's profit expectations. Kotak expects 1.3 percent sequential decline and ICICI Securities 2.2 percent decline in profit while Motilal Oswal sees 13 percent growth and Emkay Research 7 percent.
Operational Performance
Operational earnings are expected to be strong but wage revision and seasonal weakness in IP segment may limit margin expansion, brokerage houses said.
EBITDA (earnings before interest, tax, depreciation and amortisation) growth is likely to be in the range of 4-9 percent.
Kotak Securities, which expects EBITDA margin expansion of 10 bps, said the benefit of INR depreciation to be offset by - (1) seasonal weakness in IP business, (2) wage revision impact of 70 bps and (3) reinvestment of currency gains.
Axis Capital also sees 10 basis points rise in margin and Motilal Oswal expects 20 bps rise QoQ, but ICICI Securities feels margins could decline 20 bps QoQ on account of partial wage hike and weak IP seasonality partly countered by rupee benefit.
FY19 guidance
Kotak expects the company to maintain 9.5-11.5 percent CC revenue growth guidance. "Composition of growth guidance is 4.25-6.25 percent from acquisitions with balance from acquisitions and potential deals in FY2019E."
BoB Capital Markets also expects an unchanged revenue and operating margin guidance for FY19.
Other key things to watch out for
According to brokerage houses following are key things to watch out for:
> Commentary about growth in IMS, and ERD businesses.
> Progress on deal closures in IMS, areas which have witnessed a slowdown
> Capital allocation in light of aggressive M&A targets of the company
> Synergy benefits and performance of inorganic initiatives
> Utilisation of currency gains.
> Any revision to revenue growth and margin guidance for FY19
> More clarity in IP revenues
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