HCL Technologies tanks 7% on margin disappointment in December quarter

EBIT margins for services (IT services+ ER&D) were down 190 bps on a QoQ basis.

Shares of HCL Technologies tanked 7 per cent to Rs 1,244 on the BSE in Monday’s intra-day trade after the company Q3 earnings disappointed on the margins front.

In Q3, HCL Tech reported a net profit of Rs 3,442 crore, down 13.6 per cent year-on-year (YoY). Net profit was, however, up 5.4 per cent on a sequential basis. Revenue for the quarter grew 15.7 per cent YoY to Rs 22,331 crore, and rose 8.1 per cent sequentially. On a constant currency basis, HCL Tech’s revenue was up 7.6 per cent sequentially, one of the best quarters in the last 12 years, said the company.

However, the company reported flattish earnings before interest and tax (EBIT) margins of 19 per cent at the company level while margins for services (IT services+ ER&D) were down 190 bps QoQ due to 80 bps impact of salary hike, -65 bps due to loss of days due to furlough, -85 bps on retention and bonus related, -40bps new customer investment, which was mitigated by +60 bps operating efficiencies and +20 bps currency tailwind, ICICI Securities said in a result update.

The management reiterated double digit revenue guidance for FY22 and 19-21 per cent EBIT margin for FY22. The company indicated that 65 bps margin impact for the quarter (due to seasonal leaves) would not be recurring in nature but other factors may continue to impact for few quarters. Due to this, HCLT expects EBIT margins to be at the lower end of the guided range

“HCL Tech continues to win multiyear deals in Cloud transformation, cyber security, etc as new deal bookings continue to be strong. We expect healthy double digit growth in revenues in FY22E mainly led by improved growth in IT & business services and ER&D. However, margins are expected to be under pressure for a few more quarters. We expect ~140 bps EBIT margin decline over FY21-24E,” the brokerage firm said in result update.