HCL Tech Q2 preview: Revenue to rise 13% YoY; margin impact keenly eyed

Most analysts eye a double-digit revenue growth for HCL Technologies between 12 and 13 per cent year-on-year for the second quarter of the financial year 2021-22

HCL Technologies' September quarter performance will be closely tracked by the investors on Dalal Street, especially after the company outperformed both the Nifty50 and Nifty IT pack by a wide margin in the recently concluded quarter. Shares of the IT major rose a whopping 30 per cent compared with a 13 per cent gain in the 50-stock index and 20 per cent jump in the IT index. The company will post its Q2 numbers on Thursday, October 14.

Most analysts eye a double-digit revenue growth between 12 and 13 per cent year-on-year (YoY) for the second quarter of the financial year 2021-22 (Q2FY22). The strong recovery, they say, will be led by the ramp-up of large deals won in the earlier quarters. That said, profit growth will likely remain flat with many brokerage projections ranging from 3 per cent to 6 per cent.

Home-grown brokerage ICICI Securities eyes a 12.6 per cent YoY rise in Q2 revenue at Rs 20,942 crore over Rs 18,594 crore posted in the corresponding quarter last fiscal, mainly led by broad based growth across verticals, improvement in product revenues and easing of stress in ER&D segment. On a quarter-on-quarter (QoQ) basis, the figure could grow by 4.4 per cent from Rs 20,068 crore posted in the preceding quarter of FY22.

"HCL Technologies is expected to report 4.5 per cent QoQ revenue growth in constant currency (CC) terms. Revenues are expected to be partially offset by cross currency impact of 30 bps for the quarter. Hence, dollar revenues are expected to be up 4.2 per cent QoQ," the brokerage said in an earnings note.

At the same time global brokerage HSBC projects a 5.3 per cent QoQ rise in revenue in CC terms while the dollar revenue growth is pegged at 4.5 per cent sequentially at $2,842 million over $2,720 million in Q1FY22. In rupee terms, HSBC pegs Q2 revenue at Rs 21,055.8 crore, the highest among many other brokerages, translating into a growth of 13.2 per cent YoY and 4.9 per cent QoQ.

Another brokerage JM Financial has Q2 revenue estimate at Rs 20,790.1 crore, up 11.8 per cent YoY while calculations by Sharekhan analysts peg the same figure at Rs 21,052 crore, up 13.2 per cent YoY.

 

That said, Sharekhan's profit projections come in at Rs 3,355 crore as against Rs 3,142 crore in the same period last year, implying a 6.8 per cent growth. Meanwhile, sequentially, the figure could gain 4.4 per cent as against Rs 3,213 crore posted in the June 2021 quarter.

Analysts at JM Finacial, however, expect the profit to remain largely flat, up 2.7 per cent on a yearly basis and 0.4 per cent, sequentially. Their Q2 net profit estimates stand at Rs 3,226.

Contrary to its peers, ICICI Securities eyes a contraction in profit figure both sequentially and yearly. The brokerage said that PAT is likely to decline 5.4 per cent QoQ and 3.2 per cent YoY to Rs 3,041.9 crore. Meanwhile, it believes that the EBIT margins for the quarter are expected to be impacted by salary hikes (spread over two to three quarters) and supply-side issues.

Other brokerages too expect an impact on margins on a YoY basis while they say the figure could remain largely unchanged sequentially.

"EBIT margin is expected to improve by 29 bps QoQ, led by strong revenue growth and higher offshoring. HCL Tech is also expected to maintain its double-digit revenue growth guidance and EBIT margin guidance of 19-21 per cent for FY2022E," Sharekhan analysts said.

Meanwhile, those at JM Financial expect EBIT margins to be unchanged on a QoQ basis at 19.6 per cent. On a YoY basis, it could decline by 200 basis points (bps) from 21.6 per cent.

FY22E revenue and margin guidance, commentary on deal pipeline and measures to defend margins in the wake of supply-side pressures will be areas of interest for investors, believe analysts.