HCL Tech Q4: From PAT to margin guidance, here're the key things to track

Brokerages expect the firm's earnings before interest and tax (EBIT) margins to have fallen sequentially by up to 90 basis points on supply side pressures and subdued P&P performance.

After TCS and Infosys, large-cap IT major HCL Technologies is set to announce its March quarter (Q4FY22) results on Thursday, April 21. Analysts expect the company to post weak-to-modest sequential revenue growth of 0.5-2.9 per cent in constant currency (cc), due to dull performance of the products and platform business (P&P).

On a yearly basis, the firm's revenue is expected to have grown by 14-16 per cent while net profit may have risen 37-40 per cent in Q4. 

Meanwhile, over the preceding quarter, net profit may have fallen by 3-4 per cent, brokerage estimates show.

In Q3, the company had posted revenues of Rs 22,330 crore, and net profit of Rs 3,443 crore. 

On the margin front, brokerages expect the firm’s earnings before interest and tax (EBIT) margins to have fallen sequentially by up to 90 basis points on supply side pressures and subdued P&P segment performance.

In terms of guidance, analysts at Jefferies and Emkay Global expect HCL Tech to spell EBIT margin guidance at 18-20 per cent for FY23 vs 19-21 per cent for FY22.

The stock of the company has fallen nearly 19 per cent so far this year relative to a 15 per cent decline in the BSE IT index. In comparison, the Sensex benchmark has shed 3 per cent during this period.

Key factors on investor radar

Investors will closely watch out for FY23 revenue & margin guidance, commentary on deal pipeline and pricing, timeline of revival of growth in products business, growth outlook for engineering and R&D (ER&D) and P&P segment, attrition trend, and calendar year 2022 IT budget. 

Brokerages overview

ICICI Securities: The brokerage expects 2 per cent QoQ revenue growth in cc terms, with a 3.4 per cent sequential decline in net profit. Margins are expected to contract by 80 bps from last quarter to 18.2 per cent on higher attrition.

Prabhudas Lilladher: Analysts expect softness in Q4 with a 1.4 per cent QoQ revenue growth (cc) as healthy growth in IT services and ER&D is expected to be offset by sharp decline in P&P owing to seasonal weakness. Margins are expected to decline by 85 bps.

Emkay Global: It expects EBIT margins to decline 90 bps sequentially due to adverse business mix and supply-side pressures.

Motilal Oswal: Margin in core services segment should improve from Q3, but lower P&P margin will drag down overall profitability by 90 bps QoQ, it said. The services business will likely maintain its strong growth momentum growing 4.3 per cent in cc terms from Q3.

Jefferies: Analysts see revenue growth to be weak at 0.5 per cent QoQ (cc). They expect services to grow 2.6 per cent sequentially, with a sharp decline of 13 per cent in P&P segment. A double-digit revenue growth guidance is likely.

Nomura: The brokerage estimates cc revenue growth of 2.9 per cent from last quarter (cc) led by services business with a 10 per cent dip in product business. It expects EBIT margin to be largely flat from last quarter. 

HSBC Global: Analysts here see a 20 per cent plus quarterly decline in P&P as Q4 is a seasonally weak quarter for this business. This will likely result in 1.7 per cent cc revenue growth, and a 50 bps sequential margin decline.