HomeBUSINESSQ1FY23 preview: Is another strong quarter stored for HCL Tech? Key things...

Q1FY23 preview: Is another strong quarter stored for HCL Tech? Key things to watch

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Noida-based IT services and consulting firm, HCL Tech is set to announce its financial performance for the first quarter ending June 2022 period of FY23, tomorrow. Ahead of its earnings, HCL Tech shares witnessed bearish demand in Monday’s trading session. In the upcoming quarter, HCL Tech’s constant currency revenue growth is likely to be stable in IT services and ER&D. However, profit after tax (PAY) may decline sequentially while margins are expected to be under pressure. Among key things to watch in Q1 will be revenue and EBIT margin guidance, the impact of the challenging macro environment, and management commentary.

On BSE, HCL Tech shares closed at 943.40 apiece down by 40.35 or 4.10% today. Its market valuation is around 2,56,007.17 crore.

HCL Tech’s peer TCS has announced its June 2022 quarterly result which is a miss from analysts’ estimates. However, expectations have also mounted for another strong quarter by HCL Tech after its stellar performance in the preceding quarter and full-year FY22.

In Q4FY22, HCL Tech posted a strong consolidated net profit of 3,593 crore up by 226% from 1,102 crore in the corresponding quarter a year ago. However, HCL Tech’s profit — excluding the impact of a one-time milestone paid a bonus to employees and the DTL on goodwill expense last year — rose 24%, meanwhile, sequentially the growth was 4.4%. Consolidated revenue climbed by 1.2% qoq and 15.1% yoy to 22,597 crore in Q4. Constant currency revenue growth was 1.1% qoq and 13.3% yoy, while in dollar terms, revenue jumped 11% yoy and marginally 0.5% qoq to $2,993 million.

In the fourth quarter of FY22, HCL Tech announced revenue guidance of 12% to 14% in constant currency and EBIT margin to be between 18% to 20% for the fiscal FY23.

For the entire fiscal FY22, HCL Tech posted a PAT of 13,499 crore and revenue of 85,651 crore rising by 4.3% and 13.6% from the previous fiscal.

What to expect in Q1FY23?

Aditi Patil- Research Associate at Prabhudas Lilladher said, “We expect 1% QoQ USD, 2.9% QoQ CC growth in 1QFY23. CC growth is expected to be healthy in IT Services and ER&D due to ramp-up order book signed in previous quarters. Growth is expected to be flattish in P&P business,” adding, “We expect EBIT margin to decline by ~90bps led by increase in travel costs, elevated manpower costs due to high attrition, and drag on utilization due to massive fresher hiring in FY22.”

“We expect healthy deal win momentum to continue,” Patil added.

Prabhudas Lilladher expert believes HCL Tech will maintain 12-14% revenue growth guidance and 18-20% EBIT margin guidance for FY23. However, key focus will be on the – 1) impact of high inflation and challenging macro environment on tech spending, 2) onsite wage inflation and attrition trend, 3) growth outlook in products business, 4) commentary on ability to maintain margin within guidance range.

On the other hand, Sameer Pardikar, Research Analyst at ICICI Direct said, “We expect muted performance from HCL Tech in a seasonally weak quarter.”

Pardikar added, “We expect P&P business to report single-digit decline while IT services and ER&D to report modest 2-2.5% QoQ CC growth. On account of ~60 bps cross-currency headwinds, we expect the company to report 1.4% QoQ growth in dollar term. Rupee revenues are expected to report revenue growth of 3.7% QoQ. EBIT margins for the quarter are expected to contract 90 bps QoQ due to increase in retention costs as well as increase in travel costs. PAT is expected to decline 7.9% QoQ.”

ICICI Direct analyst expects HCL Tech to report a revenue of 23,422.7 crore up by 3.7% qoq and 16.7% yoy. EBITDA is seen at 5,012.5 crore slightly down by 0.8% qoq and edging higher by 2.1% yoy. PAT is seen at 3,310.7 crore up 3% yoy but down by 7.9% qoq.

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