HCL Tech Q3 preview: Double-digit QoQ profit growth seen on seasonal boost

Analysts expect margin to improve, supported by favourable seasonality in the products business, AI-led productivity gains and the benefit of a weaker rupee

HCL Technologies is expected to report a sequential double-digit rise in third-quarter profit, supported by revenue growth driven by seasonal tailwinds and strength in key verticals.

 

The information technology (IT) firm will report its earnings for the quarter ended December on Monday, January 12. 

 

HCL Technologies’ revenue is estimated to increase 4.2 per cent quarter-on-quarter (Q-o-Q) to ₹33,282.2 crore in the third quarter, according to consensus estimates compiled by Business Standard. Analysts expect margin to improve, supported by favourable seasonality in the products business, artificial intelligence-led (AI) productivity gains and the benefit of a weaker rupee.

 

Net profit is projected to rise 12.9 per cent sequentially to ₹4,784.5 crore. On a year-on-year (Y-o-Y) basis, profit is expected to grow by an average of about 4.22 per cent.

 

 

Analysts expect the company to narrow its overall revenue growth guidance and estimate the net new deal wins to exceed $2- 2.5 billion, driven by one large deal closure. 

 

In the second quarter, HCLTech reported net profit of ₹4,235 crore, up 10.2 per cent Q-o-Q. Revenue from operations for the quarter stood at ₹31,942 crore, up 5.2 per cent. 

 

Details on large deal wins, outlook on client discretionary spending, commentary on cost takeout projects and BFSI vertical are among the major things to watch, according to brokerages. 

Here's how analysts of various brokerages expect HCL Tech to fare in Q3:

Motilal Oswal: The brokerage expects HCL Tech to report constant currency (CC) revenue growth of 2.3 per cent Q-o-Q, supported by seasonal tailwinds in its products business. For the full year, the brokerage estimates Y-o-Y CC growth of 4.0 per cent, with organic growth at 3.3 per cent, within the company’s guided range of 3-5 per cent. 

 

Motilal Oswal believes the BFSI and hi-tech segments will perform relatively better, while the manufacturing vertical, particularly the auto segment, and engineering and research and development services are likely to remain under pressure.

 

Margins are expected to improve by around 70 basis points, aided by a seasonally stronger quarter for the software business and operating leverage. This is despite the impact of wage hikes of about 70-80 basis points and furloughs.

 

Nomura: It expects revenue to grow 3.4 per cent sequentially in CC terms, aided by a seasonally strong quarter for the products business and a stable services segment, with further improvement in services. The brokerage expects net new deal wins to exceed the usual $2-2.5 billion range, driven by the closure of one large deal.

 

Analysts also expect Ebit margin to improve by around 80 basis points Q-o-Q, supported by a higher contribution from the software business and currency gains. This, however, is likely to be partly offset by ongoing restructuring costs and increased sales investments.

 

Kotak Securities: The brokerage expects growth in the services business, led by the ramp-up of large deals won during the quarter. Seasonal strength in the products business is expected to add about 180 basis points Q-o-Q to overall revenue growth. 

 

The brokerage forecasts an underlying Ebit margin expansion of around 100 basis points Q-o-Q to 18.5 per cent, after factoring in a 70 basis points impact from restructuring charges.

 

Kotak Securities expects the company to narrow its overall revenue growth guidance for FY26 to 3.5-4.5 per cent from the earlier 3-5 per cent. Services revenue growth guidance is also likely to be revised to 4.5–5.0 per cent from 4–5 per cent, while the Ebit margin guidance of 17–18 per cent is expected to be retained.  ===== 

(Disclaimer: The views and investment tips expressed by the brokerage in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.)