HCL Tech Q1FY23 Preview: IT major may report stable numbers in terms of revenue, profit likely to fall, say brokerages

IT major HCL Technologies are likely to report stable numbers in terms of revenue in the first quarter of the financial year 2022-23 (Q1FY23), however, may see a dip in profit during the quarter, several brokerages said. In CC terms, the revenue may come between 0.3-3 per cent in Q1, they added.

Motilal Oswal said, 1QFY23E CC (Constant Currency) growth will be good due to deal conversion in IT services and P&P (Products and Platforms) seasonality, and the Core Services business will see some growth moderation, but should deliver 2.5 per cent Quarter-on -Quarter (QoQ) CC growth.

While Margin in Services to remain stable vs 4QFY22 levels, overall profitability will stay below guidance, similarly, the outlook on Services and the P&P business in FY23 will be key monitorable, the domestic brokerage said in its preview note of HCL Tech.

Equirus Securities expect a US$ revenue growth of 0.3 per cent QoQ (CC: +2.2%) and expect relatively soft growth in both in services & P&P due to seasonality. EBIT margins are likely to decline by 50 basis points (bps) led by headwinds from supply-side issues, higher addition of freshers (both in 4Q and expectations of same in 1QFY23E), and higher travel cost, it added.

The brokerage also expects HCL Tech to reiterate its 12-14 per cent US$ sales growth guidance in CC terms with an expectation of EBIT margin guidance of 17.5-19.5 per cent for FY23E against earlier guidance of 18-20 per cent.

Key things to look for according to Equirus: Demand outlook for ER&D services, P&P, business application, IMS, and digital services in FY23E. The impact of ongoing macro issues on HCLT growth/margin outlook or on its clients, if any.

Details regarding FY23E US$ sales and EBIT margin guidance, any update on the acquisition strategy in the medium term, capital allocation policy, and deal pipeline/wins, the brokerage added.

Meanwhile, Sharekhan expects CC revenue growth of 2.6 per cent QoQ and cross-currency headwinds of 170 bps. Hence, USD revenue is expected to grow by 0.9 per cent QoQ.

The brokerage also expects growth would be driven by IT services and ERD business, while product business is expected to remain flat sequentially, similarly, growth in a service business (IT and ERD) would be driven by the ramp-up of deals won earlier.

EBIT margin is expected to decline by 77 bps QoQ, owing to supply-side pressures, higher subcontractor expenses, and rising travel expenses, these margin headwinds will be partially offset by currency tailwinds, Sharekhan said in its preview note on HCL Tech

The majority of these brokerages see the profit after tax in the quarter is likely to decline up to 10 per cent QoQ, while revenue in rupees terms may come around 3 per cent QoQ during the quarter.

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