Shares of large-cap IT services provider HCL Technologies Ltd rose 2.5% on Friday, reacting to its March quarter earnings, on the NSE. Revenue growth in constant currency terms grew substantially in line with expectations at 1.1% sequentially. While its IT Services business helped with revenue growth, the Products and Platforms business was a drag. The company signed six major services and four product deals for a total new deal totaling a total contract value of $2.3 billion.
For FY23, the company has guided for dollar increase in revenue 12-14% in constant currency terms. Its services business is likely to be aided by continued traction and a healthy deal pipeline. Ebit margin for FY23 is seen in the range of 18-20%. Ebit is short for earnings before interest and tax.
Analysts at Kotak Institutional Equities said HCL’s FY23 margin guidance is in line with expectations, but its revenue guidance is ahead of estimates. That said, the domestic brokerage house has warned that even if HCL’s IT services margins continue to improve, volatility in the product segment will continue.
Analysts at Motilal Oswal Financial Services Ltd expect HCL to struggle on margins. He says that HCL’s Ebit margin will remain at the low end of its guidance before recovering in FY24 as a result of supply-side issues and higher investment requirement. It is to be noted that on a trailing basis for the last twelve months, HCL’s IT services attrition increased to 21.9% in Q4FY22 from 19.8% in the previous quarter.
Meanwhile, HCL Technologies stock has gained 15% in the past one year. Pierce Tata Consultancy Services, Infosys Ltd and Wipro Ltd have registered a growth of 16% and 18% respectively. On the valuation front, analysts at IIFL Securities Ltd say that while the stock is trading at a 30% discount to peers, the rerating will be contingent on more consistent delivery on growth and margins.