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Informist, Friday, Jan. 10, 2025

This is a fresh update of the Earnings Outlook published on Jan. 7, with additional inputs.

By Rajesh Gajra

NEW DELHI – Seasonal tailwinds in its main software business are likely to prop up sequential growth of HCL Technologies Ltd.'s revenue and operating margin in the quarter ended December. The estimated growth for the December quarter is more than double the growth rates in the previous three quarters.

However, it will still be lower than the sequential growth rates recorded by the technology major in December quarters of past four financial years when, too, the seasonality factor had shored up the company's topline and margin growth. The company will detail its earnings on Monday.

The consolidated net profit of HCL Technologies, the third-largest information technology provider in the country, is estimated at INR 45.49 billion and the consolidated revenue is estimated at INR 299.9 billion, according to an average of estimates by 14 equity brokerages. Sequentially, the net profit estimate is 7.4% higher while the revenue estimate is 3.9% more. The net profit projections range from INR 42.92 billion to INR 47.90 billion while those for revenue range from INR 288.62 billion to INR 302 billion.

In constant currency terms, brokerages expect HCL Technologies to post similar sequential growth rate as in rupee terms. The technology company's consolidated revenue in constant currency terms is seen at $3.55 billion in Oct-Dec, up 2.7% over the previous quarter, according to average of estimates by eight brokerages.

In the quarter ended September, the company's consolidated net profit declined 0.5% on quarter to INR 42.35 billion, but was higher than the Street's estimate of INR 40.29 billion. Consolidated revenue rose by nearly 3% on quarter to INR 288.62 billion, surpassing analysts' estimate of INR 286.03 billion. In constant currency terms, the revenue was up 1.6% sequentially.

Elara Securities expects HCL Technologies to report a sequential growth of 3.3% in US dollar terms, "led by its products and platforms business due to seasonality." The brokerage expects products and platforms business to record 20% on quarter growth, while IT and business services is likely go up by 1.5% and engineering and research and development services by 1.8%.

HCL Technologies' "software business seasonality and contribution from the CTG (Communications Technology Group) acquisition for a month to aid growth," brokerage Emkay Global Financial Services said in its preview report. Brokerage Motilal Oswal Financial Services expects HCL Technologies to post 3.7% on quarter constant currency growth, "driven by tailwinds from renewals in its products business."

The banking and financial services vertical's sequential growth is seen muted or negative by brokerages. HCL Technologies' "growth in Q3 (Oct-Dec) should be led by Hi-Tech and HLS (http live streaming) verticals and normal furloughs may play out for the BFSI (banking and financial services industry) vertical due to which growth may seem optically lower than in Q1/Q2 (Apr-Jun and Jul-Sep)," Elara Securities said in its preview report.

In the December quarter of previous four financial years, the seasonality factor had shored up HCL Technologies' sequential growth rate in revenue by a larger proportion that it is seen for this year. In the December quarter of 2023-24 (Apr-Mar) the company's revenue grew 7% on quarter, while in FY23 the same quarter saw revenue rise 8%. In FY22, it rose by 8% sequentially, while in FY21 it was up 4%.

For the December quarter of the current financial year the estimated revenue growth is 3.9%, lower than the growth rates recorded in the previous four December quarters. This indicates that subdued sequential growth rates that HCL Technologies and other IT companies have been witnessing in the past one year will not dramatically change in the December quarter. The business seasonality in Oct-Dec will also aid HCL Technologies' margin, brokerage HDFC Securities said in its preview report.

On the guidance front, Emkay Global Financial Services expects HCL Technologies to increase its FY25 revenue guidance to 4.5-5.5% from 3.5-5% mainly due to the impact of the Communications Technology Group acquisition. Brokerages HDFC Securities also expects the revenue guidance to be revised upwards by HCL Technologies but did not specify the number.

Motilal Oswal Financial Services however expects the revenue guidance of HCL Technologies to remain unchanged. A lower rate of upward revision is seen by broking Nuvama Wealth Management Ltd. which expects it go up to 4-5%. Brokerages expect the operating margin and net profit growth of the company to follow the same trajectory as revenue growth.

Post-earnings disclosure, the market will be keenly watching for company's management commentary and tonality of discretionary demand environment and budget indicator for 2025, HDFC Securities said. The brokerage said it will also be following the company's commentary on deal activity and pipleline, "particularly post-election", outlook on industry verticals of manufacturing and retail, and supply-side metrics.

Following are the Oct-Dec earnings estimates for HCL Technologies based on reports from 14 brokerages:

End

US$1 = INR 85.95

Edited by Deepshikha Bhardwaj

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