HCL Tech Q2 Preview: Brokerages expect flat revenue, decline in TCV

HCL Tech, the third largest Indian information technology firm is scheduled to deliver its financial results for the second quarter (July-September) of fiscal year 2024-25 (Q2FY25) on Monday, October 14. 

The Indian IT major is expected to register a single digit rise in its topline and bottomline compared to the September quarter of FY24. 

Brokerages said that the company's products business revenues may take a hit but will be offset by growth in the services segment. Its total contract value (TCV) is also expected to decline on a year-on-year basis, analysts said. 

According to brokerages tracked by Business Standard, HCL Tech will likely register an average net profit Rs 4,068 crore in Q2FY25, a rise of 6 per cent year-on-year (Y-o-Y) against Rs 3,837 crore in Q2FY24. Meanwhile profits may slip by 1.6 per cent quarter-on -quarter, compared with a profit after tax (PAT) of Rs 4,135 in the June quarter of FY25. 

 

HCL Tech’s average revenue will potentially increase 7.1 per cent Y-o-Y to Rs 28,589 crore as against Rs 26,674 crore in Q2FY24. Sequentially revenues may only rise by 1.8 per cent. The company registered revenues of Rs 28,058 crore in the June quarter of FY25. 

Key monitorables: The street will be keen on asking questions from the company on new deal TCV that has been fairly weak over the last few quarters, impact to revenues, if any, from Verizon deal anniversary, recovery in discretionary spending in services segment, and environment

required to hit an aspirational margin band of 19-20 per cent. 

Moreover, here’s what key brokerages expect from HCL Tech’s Q2 results:

HSBC: HSBC analysts expect all verticals to grow, except banking, due to the planned divestiture of the State Street business. Revenue is forecasted to increase by 1.5 per cent quarter-on-quarter, including a 60 basis point positive FX impact. 

Margins are expected to improve sequentially, driven by positive operating leverage in the ER&D business. Key focus areas include HCL Tech's previously guided FY25 revenue growth of 3-5 per cent, with particular attention to deal ramp-downs and the outlook for the ER&D business.

Nuvama Institutional Equities: Nuvama analysts expect HCL Tech to report 1.3 per cent quarter-on-quarter growth in constant currency (CC) and 1.9 per cent in $, driven by IT Services (+2 per cent QoQ), Engineering R&D (+1.2 per cent QoQ), and Products & Platforms (+2 per cent QoQ). 

EBIT margin is forecasted to improve by 70 basis points QoQ. HCL Tech is expected to maintain its FY25 revenue growth guidance of 3-5 per cent in CC for Services and its EBIT margin guidance of 18-19 per cent.

Kotak Institutional Equities: KIE analysts project 0.8 per cent constant currency revenue growth for HCL Tech, with an 80 bps impact from the sale of its stake in the State Street BPO business. 

Product revenues may decline but should be offset by service growth, excluding the BPO segment. 

A 100 bps quarter-on-quarter rise in EBIT margin is expected due to seasonal upticks, wage cycle shifts, and efficiency measures. 

TCV is predicted to rise 15 per cent sequentially to $2.2 billion, despite a year-on-year decline. HCL Tech is expected to maintain its FY2025E guidance of 3-5 per cent revenue growth and 18-19 per cent EBIT margin.

Motilal Oswal Financial Services: Analysts at Motilal Oswal expect HCL Tech to report flat quarter-on-quarter revenue with stable TCV trends. Margins are projected to rise by 30 basis points quarter-on-quarter, driven by pyramid gains and the release of some productivity commitments. 

Broad-based growth is anticipated across geographies and verticals, except for BFSI, due to the State Street divestment. The company is expected to maintain its FY25 revenue growth guidance of 3-5 per cent.

PhillipCapital: PhillipCapital analysts expect HCL Tech to post 0.5 per cent QoQ growth in constant currency, with IT Services up 1.3 per cent and ER&D growing 1.5 per cent in $, while Software remains flat. Margins are projected to expand by 90 bps QoQ due to operational efficiencies. 

HCL Tech is likely to retain its FY25 guidance of 3-5 per cent CC growth and 18-19 per cent EBIT margin. Key areas to watch include FY25 guidance, ERD/Products outlook, deal TCVs, discretionary spending, and attrition.