 "HCLTech Q2 preview: ASAP deal to aid revenue growth; guidance revision eyed")
The recovery, analysts said, will be aided by the contribution from its acquisition of the German automotive engineering company ASAP Group.
Brokerage Motilal Oswal pegs the highest sequential cc revenue growth of 3.6 per cent without assuming contribution from the ASAP deal. Others see this in a modest range of 0.5-1.1 per cent.
The growth, Motilal Oswal said, would be aided by the recovery in the engineering and R&D services (ERD).
In rupee terms, HCL Tech may post a 7 per cent yearly profit growth to Rs 3,739 crore, as per an average of six brokerage estimates, while revenue is pegged to rise 8.8 per cent YoY to Rs 26,852 crore. SEE TABLE
Sequentially, the revenue and profit growth is expected to be 2 per cent and 5.8 per cent, respectively.
Some analysts including those at HSBC Global and IIFL Securities see the possibility of the company trimming its FY24 revenue guidance to 6-7 per cent from 6-8 per cent (due to higher inorganic component of ASAP).
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The company’s EBIT margin is seen expanding anywhere between 20-110 basis points sequentially to as much as 18.1 per cent on the delay in wage hikes.
Key monitorables: Investors will track any change in the FY24 growth guidance, commentary on ramp-up of deal wins, demand trends in ERD and impact on margins from recent mega deals.
Here’s what brokerages say:
HSBC Global: Expect 1.5 per cent growth in IT services and 0.5 per cent growth in ERD (mostly inorganic), while a 2 per cent QoQ decline in the software vertical revenue. This will lead to organic cc QoQ growth of 1 per cent.
Large deals will start ramping up in the second half of the fiscal. We see margins improving by 110 bps in the absence of seasonal productivity impacts from Q1, deferment of wage hikes, and operational benefits.
HCL Tech could revise the revenue guidance downwards. We see its FY24 margins at 18 per cent, the lower end of its guidance of 18-19 per cent.
Motilal Oswal Financial: HCL Tech should see a 70 bps QoQ margin improvement on account of wage hike deferrals and operating leverage. Expect the company to maintain its revenue guidance and margins.
JM Financial: Estimates a 0.8 per cent QoQ cc revenue growth with a 20 bps cross currency headwind translating into a 0.6 per cent QoQ dollar revenue growth.
We have built in a one-month revenue contribution from the ASAP acquisition aiding growth by 50 bps, while organic growth is expected to be flattish. Expect EBIT margins to improve 27 bps QoQ as operational efficiency will likely be partially offset by lower ASAP margins.
IIFL Securities: Sees cc revenue growing 1.1 per cent QoQ (0.6 per cent is organic growth) due to the subdued IT spending environment during the quarter. Expect margins to expand by 50 bps QoQ. Expects the firm to narrow down FY24 cc growth guidance to 6-7 per cent.
Kotak Institutional Equities: Sees a 0.8 per cent cc revenue growth on a QoQ basis, (includes 0.5 per cent contribution from ASAP acquisition) led by a 1.7 per cent QoQ growth in IT services due to ramp-up of large deals, a 2.7 per cent growth in ERD, including ASAP and 8.9 per cent decline in the products segment.
Forecast the deal TCV at a record high $4 billion, comfortably higher than the average of $2 billion.
Its guidance of 6-8 per cent will now include the ASAP acquisition, implying a 0.8 per cent cut in organic revenue growth guidance. EBIT margin guidance of 18-19 per cent is also a stretch.