HCL Tech Q2: Organic growth may take a hit; margins likely to improve

On a year-to-date (YTD) basis, the company's stock has surged 9 per cent against the S&P BSE Sensex's 0.16 per cent decline.

India's leading technology services firm HCL Technologies is scheduled to announce its June-September quarter earnings for FY19 on Tuesday. The company is expected to deliver steady results; however, seasonal softness in Products business is likely to weigh on organic growth.

HCL Tech had reported a 10 per cent year-on-year (YoY) increase in its consolidated net profit at Rs 24.31 billion for the first quarter ended June 30, 2018. Its consolidated revenues from operations grew 14.2 per cent to Rs 138.78 billion in April-June 2018 as against Rs 121.49 billion in the same quarter of 2017-18.
 

On a year-to-date (YTD) basis, the company's stock has surged 9 per cent as against the S&P BSE Sensex's 0.16 per cent decline.

For Q2FY19, the company's revenue in constant currency (CC) terms is likely to rise by 2.5 per cent on quarter-on-quarter (QoQ) basis, aided by revenue from new IP deals and the integration of Actian, according to Motilal Oswal Securities.

In July this year, HCL Technologies completed the $330 million acquisition of US-based Actian Corporation in partnership with Sumeru Equity Partners (SEP). 
 

Prabhudas Lilladher expects the company to report 3.2 per cent QoQ CC revenue growth while Sharekhan sees CC revenue growth of 3.4 per cent. 

Cross-currency headwind is expected to be 100 basis points (bps) on US dollar revenues. EBITDA margin is expected to improve by 20 bps on QoQ basis on account of rupee tailwind, which will be offset by lower IP revenues, partial wage hike and investments in new-age technologies, says Sharekhan. 

Edelweiss Securities expects margins to rise 70 bps. On the contrary, Kotak Securities while maintaining 'average' outlook on HCL Tech estimates company's margins at 19.5 per cent, down 20 bps QoQ.

Brokerages see up to 13 per cent QoQ rise in PAT (net profit) at Rs 27.2 billion.

Key monitorables to watch out for in today's results include FY2019 CC revenue growth guidance and EBIT margin guidance range, commentary on progress of Mode 2 and Mode 3 services and deal pipelines, digital and automation growth strategies, margin outlook, outlook on demand environment in IMS (Infrastructure and management services) and ERD (Engineering R&D) businesses, progress on TCVs (Total Contract Value) of deal wins and commentary on integration of recent acquisitions.