The next hot Q4 result in the IT sector is HCL Tech which will be presenting its financial earnings on 20 April. HCL’s counterpart TCS and Infosys have already announced their Q4 results and both have largely skipped estimates, cautioning investors in the sector ahead. Will HCL Tech meet the same fate as its peers, is something everyone is wondering about! Experts expect HCL to meet its FY23 revenue and margin guidance. Q4FY23 sees PAT in double digit percentage growth on both sequential and annual basis. The company’s board will also consider the first interim dividend for FY24 on Thursday.
on Tuesday, HCL Tech emerged as the top gainer on the exchanges ahead of its earnings. Company stock ended at 1,063.50 on the BSE, up 1.99%.
On April 20, apart from the announcement of Q4 earnings and full year FY23 financial report, the HCL Tech board members will also consider the interim payment. Dividend For the financial year 2023-24.
HCL Tech posts consolidated net profit during Q3 FY23 4,096 crore up 19% YoY. This quarter, the IT major beat estimates on the back of strong deal wins. stood on revenue 26,700 crore is up 19.5% YoY. In constant currency terms, HCL Tech reported revenue growth of 5% QoQ and 13.1% YoY. The company’s attrition rate dropped significantly to 21.7% in Q3FY23.
At that time, HCL Tech had reduced its revenue and margin guidance bands. FY23 revenue growth is now seen at 13.5-14% in constant currency and EBIT margin now at 18-18.5%.
What to expect in Q4?
In its preview report, ICICI Securities said, “We expect HCL to report 6.1% CC revenue growth in FY24E and hence start with guidance of 5-7% annual revenue growth in CC terms for FY24E.” On EBIT margin guidance, we expect it to be 18-19% for FY24E after seeing 18.4% in FY23E. For Q4FY23E, we expect HCL results to be subdued due to weak weather in product and platform business Our coverage will be the weakest in the universe in terms of CC QoQ growth. HCL is currently trading at a discount of 19% nifty it, which is equal to the average of the last 16 years. Our revised 12-month target price is Rs1,122 (Rs79 based on 16x FY26E EPS, 12% discount by WACC) with 5% potential upside. Repeat the hold.”
Meanwhile, Motilal Oswal in its report said, “We expect HCLT to register muted growth due to seasonal decline in HCL Software.” It expects margins to decline by 150bp QoQ due to seasonal decline in HCL Software. However, the brokerage believes that the IT services of the company will continue to be strong in 4QFY23.
Motiyal expects HCL Tech to post revenue 27,200 crore in Q4FY23 up 20.3% YoY. EBITDA is likely to be 6,400 crore with a margin of 23.8% in the quarter. Factor around the adjusted PAT 4,100 crore with 19% YoY and 17.4% QoQ.
In addition, according to B&K, management maintained guidance for services revenue to grow in the range of 16% to 16.5% in CC terms. Having said that, the company posted a growth of 17.8% in 9MFY23, therefore, it needs around 2% QoQ growth in Q4FY23 to meet the guidance which is likely to happen. Overall, HCL’s revenue in terms of CC is seen in the range of 13.5% to 14% YoY. Notably, HCL has a cross-currency tailwind in Q4.
Further, B&K highlighted that for FY23, margins will now max out at 18.5% and the management also believes with higher investments, overall margins could go up to 18.5% from 18%. B&K believes that the company can achieve this margin in Q4 and even reach 19%. In 9MFY23, the margin stood at 18.2%.
Furthermore, IDBI Capital expects HCL’s expected revenue growth (in CC) to decline by 1% in QoQ with cross-currency tailwind of 15 bps—primarily due to seasonal softening in product revenue. While EBIT margin may be down by 99 bps QoQ, mainly due to deceleration in revenue growth.
According to IDBI Capital for HCL Tech the key things to watch in the fourth quarter are — 1) Outlook on product business 2) Outlook on ER&D business given the turmoil in Europe; 3) Comment on deal pipeline, particularly large deals, and pricing 4) Attrition trend 5) Margin outlook; 6) M&A plan; 7) Tech spends by customers.
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