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Informist, Friday, Oct. 11, 2024

 

By Apoorva Choubey 

 

MUMBAI – HCL Technologies Ltd. is expected to clock a lacklustre performance for the quarter ended September as cross-currency tailwinds and healthy deal wins will not be enough to offset the weakness in the high-margin products and platforms vertical, and impact of a stake sale in a joint venture. The company is widely expected to retain its guidance of revenue growth of 3.0-5.0% in constant currency terms and operating margin of 18.0-19.0% for 2024-25 (Apr-Mar). 

 

India's third-largest information technology provider's consolidated net profit for Jul-Sept is seen falling over 5% on quarter to INR 40.3 billion, the average of estimates by 17 brokerage houses showed. The estimates for the bottom line ranged from INR 37.9 billion and INR 41.8 billion. 

 

HCL Technologies' consolidated net sales may rise nearly 2% sequentially to INR 286 billion, the estimates showed. The lowest projection for the top line was INR 283 billion while the highest was INR 288.7 billion. 

 

In constant currency terms though, many brokerages expect around 1% sequential rise in sales of HCL Technologies. "We forecast 0.8% revenue growth in c/c...Growth will be impacted to the extent of 80 bps due to sale of stake in State Street BPO business," brokerage Kotak Institutional Equities said in a preview report. The products business revenues may also decline, even as other services divisions, such as IT and engineering may fare well, it said. 

 

The services business, which includes IT, and engineering and research and development services, contributes around 90% to the consolidated top line of HCL Technologies. The rest comes from HCLSoftware, which houses the high-margin products and platforms division.

 

After detailing Apr-Jun earnings, HCL Technologies had said it expects all geographies and all verticals, barring financial services, to grow sequentially in Jul-Sept. It had said there are emerging opportunities for cost-optimisation and transformation deals. 

 

The company had said the financial services vertical will likely recover from Oct-Dec. As is the usual pattern, Jul-Sep will be better than Apr-Jun and Oct-Dec will be the best quarter in the year, the company had said. 

 

While most of the services divisions will fare better in Jul-Sept than they did in Apr-Jun, the BFSI services division may take a hit, as guided, said analysts. The divestment of stake in a joint venture with State Street International Holdings will mean lower business for the division, they said. 

 

The lower contribution from this joint venture and weakness in HCLSoftware are expected to limit the expansion in the company's profitability for the September quarter. The operating margin of HCL Technologies, calculated on earnings before interest and tax, may expand to 17.7% for Jul-Sept from 17.1% during Apr-Jun, according to estimates by 13 brokerages. 

 

The EBIT margin for the quarter is seen in the range of 16.5% to 18.4%. Higher deal wins than Apr-Jun, better productivity and cross currency tailwinds are likely to help margins widen, analysts said. The wage hike cycle has also been deferred to Oct-Dec, which may also underpin margins. 

 

During the September quarter, the company's deal wins are likely to be around $2.2 billion. This would be higher than $1.96 billion in Apr-Jun. 

 

When compared year-on-year, the net profit may rise 5% while net sales may grow a little over 7%. The EBIT margin for the year-ago quarter was 18.5%.  

The company is scheduled to detail earnings after market hours on Monday. Investors will focus on the management's comments on discretionary IT spending trends, and steps being taken to achieve the aspirational operating margin band of 19-20%. Deal pipeline, impact of furloughs in Oct-Dec and hiring plans for the coming year will also be monitored. 

 

The software provider had earlier said it planned to hire 10,000 freshers in the current financial year. On the National Stock Exchange, shares of HCL Tech closed 2% higher at INR 1,839.65 Friday.

 

Following are the Jul-Sept earnings estimates for HCL Technologies based on reports from 17 brokerages:

 

 

Brokerage Name	Net Sales (INR million)	Net Profit (INR million)	Revenue (mln $)	?IT margin
Antique Stock Broking Ltd	286,960.00	41,338.00
Axis Securities Ltd	287,100.00	40,550.00		17.60
Dolat Capital Market Pvt Ltd	285,850.00	38,071.00	3,411.00	16.50
Emkay Global Financial Services Ltd	285,747.00	41,255.00
HDFC Securities Ltd	284,040.00	37,890.00	3,392.00	17.20
ICICI Securities Ltd	286,296.00	38,923.00	3,417.60	17.50
IDBI Capital Market Services Ltd	284,583.00	41,264.00	3,398.00	17.80
Indsec Securities and Finance Ltd	286,100.00	40,900.00	3,400.00	17.90
Kotak Institutional Equities	286,994.00	40,974.00	3,428.00	18.10
KR Choksey Research	288,333.00	41,146.00		17.70
Motilal Oswal Financial Services Ltd	283,000.00	39,000.00	3,379.00
Nirmal Bang Equities Pvt Ltd	288,653.00	41,785.00	3,431.00	18.40
Nuvama Wealth Management Ltd	287,868.00	40,784.00	3,427.00	17.80
PhillipCapital (India) Pvt Ltd	285,581.00	40,972.00	3,408.00	18.00
Prabhudas Lilladher Pvt Ltd	286,300.00	40,700.00	3,417.40	17.90
Sharekhan Ltd	285,810.00	40,190.00
Systematix Shares and Stocks (India) Ltd	283,301.00	39,132.00	3,393.00	17.60
Average	286,030.35	40,286.71

 

End

 

US$1 = INR 84.06

 

Edited by Akul Nishant Akhoury

 

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