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Informist, Thursday, Apr. 17, 2025

By Rajesh Gajra

NEW DELHI – HCL Technologies Ltd. is likely to report muted topline growth, a decline in operating margin, and a fall in net profit for the December quarter on a sequential basis. The company's revenue from operations is likely have been reined in by an uncertain demand environment in the services segment and seasonal weakness in the products segment, which the company operates under the brand HCLSoftware.

The operating margin is likely to be hit sequentially due to an overall weak demand environment, and an expected seasonality-led fall in revenue from the high-margin HCLSoftware segment, which contributed 11.3% to the total revenue in the December quarter.

According to the average of the estimates of 20 brokerage firms, HCL Technologies is likely to report a consolidated net profit of INR 43.52 billion for the March quarter, down 5.2% sequentially and up 9% on year. The revenue from operations is seen increasing 1.3% on quarter and 6% on year to 302.66 billion.

The highest net profit estimate of INR 46.27 billion is by PhillipCapital (India), while the lowest estimate of INR 41.10 billion is by Prabhudas Lilladher. The revenue estimates range from a low of INR 298.90 billion by Nirmal Bang Equities to a high of INR 305.97 billion by PhillipCapital (India).

In constant currency terms, HCL Tech's revenue, according to the average of the estimates of 16 brokerages, is pegged at $3.50 billion. Six brokerages have provided estimates for the company's earnings before interest, tax, depreciation, and amortisation for the December quarter, and these range from a low of INR 64.00 billion to a high of INR 66.40 billion.

In the December quarter, HCL Tech's revenue from operations increased 3.6% sequentially and 5.1% on year to INR 298.90 billion, while the net profit was up 8% on quarter and 5.5% on year at INR 45.91 billion.

Seasonal weakness in the products business is cited as the primary reason by Kotak Securities' institutional equities division and IDBI Capital Market Services for their expectation of a sequential decline in HCL Tech's revenue in constant currency terms. While Kotak expects the company's revenue in constant currency terms to decline 0.7%, IDBI Capital has estimated a 1.4% decline.

Other factors may also have hit the company's revenue for the March quarter. Brokerages Elara Securities (India) and Motilal Oswal Financial Services have estimated a drop in HCL Tech's revenue and believe seasonality in the products business to be a factor. But Elara also cites "uncertain demand environment" as another key factor behind its revenue drop expectation, while Motilal Oswal lays out other factors such as planned mega deal reductions and tapering of deals in the telecom vertical of the IT and services segment of the company.

Motilal Oswal estimates the company's operating margin to contract 190 basis points sequentially, "driven by a 50-60 bps (basis points) impact from wage hikes and high-margin P&P (products and platforms) business de-growth". Kotak Securities forecasts an earning before interest and tax margin of 18.2% for the March quarter, down 140 basis points sequentially "due to lower licence revenues from the products business...(and) transition costs related to Verizon deal".

The company will detail its March quarter earnings on Tuesday. After the announcement of the results, investors will monitor the management's commentary on a slowdown in decision-making, the impact on the overall business due to the current global macroeconomic situation, and new deal total contract value "that has been fairly modest over the past few quarters", according to Kotak Securities. "Demand trends around BFSI, Hi-tech & ERD space would be watched out for," Motilal Oswal said.

Analysts from brokerage firms expect the company to give an initial revenue growth guidance of 3-5% for the 2025-26 (Apr-Mar) financial year. According to brokerage Elara HCL Tech's performance in FY26 will be weighed down due to "no meaningful recovery in the macro environment, especially in the US market".

Kotak Securities expects the company to guide for 3-5% revenue growth for FY26; the guidance will include 100 basis points of contribution from the recent Communications Technology Group acquisition.

In January, HCL Tech had raised the lower end of its revenue growth guidance for FY25 to 4.5% from 3.5%, with the guidance range changing to 4.5-5.0% from 3.5-5.0%. In a conference call with investors and analysts following its December quarter earnings, the company's management had said 50 basis points of the rise of 100 basis points in the FY25 estimate was due to the recent CTG acquisition.

At 1021 IST, shares of HCL Tech were 3.2% down at INR 1,386 on the National Stock Exchange of India.

Following are the Jan-Mar consolidated earnings estimates for HCL Technologies based on reports from 20 brokerage firms in descending order of estimate of net profit:

End

US$1 = INR 85.53

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Avishek Dutta

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