HCL Technologies dips 2% as company reports lower-than-expected Q1 results

The management has reiterated its double-digit USD revenue growth guidance and EBIT margin band of 19-21 per cent for FY22

Shares of HCL Technologies were down 2.5 per cent at Rs 975 on the BSE in intra-day trade on Tuesday after the company’s Q1 revenue growth misses Street estimates. Its revenues increased 0.7 per cent sequentially in constant currency (CC) terms for the quarter ended June 2021 (Q1FY21). Analysts had expected revenue growth between 2 per cent and 2.5 per cent for the quarter.

Excluding the impact of a one-time bonus in the March quarter (Q4FY21), EBIT (earnings before interest and tax) margin was down 80 basis points (bps) quarter-on-quarter (QoQ) due to Covid-related expenses of 90 bps. However, the management reiterated its double-digit dollar revenue growth guidance and EBIT margin band of 19-21 per cent for FY22.

HCL has seen the addition of eight clients in the US$50 million-plus bracket, 11 in US$20 million-plus and 10 in US$10 million-plus. The company registered eight large services deal wins and four significant product wins amounting to a total contract value (TCV) of US$ 1,664 million.

While its FY22 growth guidance for the products and platforms business remains in low single-digits, we remain confident of HCL Tech growing in low teens on the back of an improvement in information technology (IT) services and Engineering and R&D Services (ER&D) verticals, Motilal Oswal Financial Services (MOSL) said in a results update. The brokerage firm sees a higher potential for the products and platforms vertical in the medium term and expects it to return to double-digit growth in FY23E.

HCL Tech’s exposure to deeply troubled verticals – energy, transportation, travel, hospitality, and retail – are lower versus its peers. It has a higher exposure to financial services, technology services, and life sciences, where the brokerage firm anticipates a better outlook.

Higher exposure to Infrastructure Management Services or IMS (~37 per cent of revenue), comprising a larger share of nondiscretionary spend, offers a better resilience to its portfolio in the current context, with increased demand for cloud, network, security, and digital workplace services, MOFSL said.

"Broad-based sequential growth, coupled with healthy deal wins and a robust pipeline, indicates an improved outlook. We estimate strong performance in the Products business, led by HCLT’s capabilities to rightly align and sell these products in the long run," the brokerage firm added.

That apart, HCL Technologies on Monday said its founder Shiv Nadar will take on the role of Chairman Emeritus and Strategic Advisor to the company's board.

The stock of HCL Technologies has been underperforming the market in the past six months, with a 2 per cent fall, as compared to a 5 per cent gain in the S&P BSE Sensex.