 "HCL Tech")
HCL Technologies (HCL Tech) will likely report muted sequential growth in revenue for the June quarter (Q1FY24) amid a persistently weak global demand environment and weakness in the company’s engineering and R&D (ER&D) business, as per analysts.
The firm’s earnings will be weak due to a slowdown in small deals, project cancellations in the ER&D segment like hitech and telecom verticals, seasonal weakness in the product and platform (P&P) business and due to annual productivity commitments, they said.
On a quarter-on-quarter basis (QoQ), the company’s Q1 revenue may grow 1 per cent to Rs 26,868 crore, as per an average of eight brokerage estimates, while net profit may drop by 4 per cent to Rs 3,822 crore. SEE ESTIMATES TABLE
Meanwhile, the year-on-year (YoY) growth is likely to be in double digits with revenue and profit seen rising 14.5 per cent and 15 per cent, respectively.
Brokerages are split on the margin expectations. HSBC sees a 60 bps decline in EBIT margin over the March quarter, while Motilal Oswal Financial Services sees a 30 bps expansion.
Key monitorables: The Street will look out for the company’s FY24 growth guidance, and its outlook on product and ER&D businesses. Commentary on the deal pipeline, especially large deals, pricing, attrition trend, M&A plans, and trends on tech spending by clients will also be tracked.
Here’s what brokerages expect:
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Jefferies: The brokerage expects HCL Tech to deliver a 0.8 per cent QoQ constant currency (cc) revenue growth, driven by 0.5 per cent growth in the services segment and a 5 per cent growth in the P&P segment. Services growth benefits from large deal ramp ups but would be impacted by annual productivity commitments, it said. EBIT margins may fall by 15 bps QoQ. The brokerage expects the firm to maintain its FY24 guidance of 6.5-8.5 per cent growth in IT services (6-8 per cent overall growth) and 18-19 per cent EBIT margin estimate.
HSBC: HSBC expects 1 per cent QoQ growth in IT & business services and a 2 per cent rise in software revenue. The margin in this quarter are seasonally weak for the company owing to productivity commitments in some of its customer contracts in the services business, it said. Lower attrition should offset some of this impact. It expects the company to achieve an 18.2 per cent EBIT margin at the lower end of its 18-19 per cent guidance.
PhillipCapital: The brokerage estimates cc revenue growth of 0.5 per cent QoQ with IT services expected to rise 1.7 per cent, P&P by 1 per cent while ER&D is seen de-growing by 4 per cent due to continued ramp downs.
IIFL Securities: Large deal ramp-up were offset by muted ER&D so we forecast cc revenue to grow 0.9 per cent QoQ. It sees margins expanding 30 bps QoQ.
IDBI Capital: IDBI Capital sees sequential revenue growth of 0.25 per cent in cc terms. Softness in growth is mainly due to one-offs in ER&D business and seasonally weak product revenues, it said. It expects EBIT margin to taper down by 47 bps QoQ.
