HCL Tech Q2 preview: Margins to improve QoQ; revenue may rise up to 20% YoY

HCL Tech Q2 results preview: Its net profit may rise by as much as 6 per cent YoY. The company's EBIT margins will likely improve by 20-60 basis points to 17.6%

IT major HCL Technologies is expected to report healthy revenue in the July-September quarter (Q2FY23) driven by its services segment, that is IT services and engineering and research and development (ER&D) activities, analysts said. 

The company, which will release its results on Wednesday, October 12, is likely to post a 14-20 per cent revenue growth on a yearly basis (YoY) to around Rs 24,412 crore, according to an average of six brokerage estimates compiled by Business Standard. 

Meanwhile, its net profit may rise by as much as 6 per cent YoY. The company’s EBIT margins will likely decline YoY, but an improvement of 20-60 basis points is estimated at 17.6 per cent. The EBIT margin was 17 per cent in Q1FY23. 

Key monitorables: Investors will look out for an update on FY23 growth guidance, outlook on E&RD, and products business (P&P), deal pipeline, attrition, levers to defend margins, and progress on onboarding 10,000 freshers announced in the earlier quarter. 

Here’s a compilation of brokerage expectations for Q2FY23:

Jefferies: The brokerage expects the company to report a quarterly (QoQ) revenue growth of 3 per cent in constant currency (CC) terms to be led by a 3.2 per cent QoQ CC growth in the services segment, and a relatively lower 1 per cent growth in the products segment on seasonal weakness.

It estimates a 20 bps inorganic contribution from Confinale and Quest Informatics deals. Despite partial wage hikes, the brokerage sees a 40 bps margin expansion driven by pyramiding, operating leverage, pricing and recovery from visa costs last quarter. It expects the firm to maintain its 12-14 per cent YoY CC growth guidance and 18-20 per cent margin guidance. 

Nomura: Nomura expects revenue to be up 4 per cent overall in CC terms led by ER&D. In dollar terms,  it sees a 2 per cent QoQ growth in IT&BS (IT and business services), 3 per cent in ER&D and 1.5 per cent growth for P&P business. 

Kotak Institutional Equities: It forecasts a sequential revenue growth of 2.9 per cent for the company with a 3.5 per cent CC growth in services (IT services and ERD). Services growth will be powered by continued strength in deals. The products business will likely decline sequentially as well as yearly to $303 million. 

Headwinds from wage revisions and attrition backfill costs will be more than offset by an increase in utilization rates, pyramid and pricing improvement. 

It sees TCV from net new deal wins at over $2 billion. Net profit growth will be negligible YoY due to the normalization of tax rates to 24.5 per cent from a low of 20.5 per cent in the September quarter last year. 

PhillipCapital: It expects the firm to post a CC revenue growth of 4 per cent QoQ. IT services & ER&D will drive this growth, while P&P growth will remain muted. 

IDBI Capital: The brokerage expects revenue (in CC) terms to grow 2.9 per cent QoQ , which will be partially impacted by 20 bps cross currency headwinds.  It expects EBIT margin to grow 59 bps from Q1 mainly due to improved utilisation and price hikes.