The next fourth quarter positive in the IT sector is HCL Tech, which will present its financial earnings on April 20. HCL’s counterparty, TCS and Infosys, have already announced their fourth-quarter results, and both have largely yet to make estimates, warning investors about the sector ahead. Will HCL Tech encounter the exact fate as its peers?
It’s something everyone wonders about! Experts expect HCL to meet its fiscal 2023 revenue and margin guidance. Q4FY23 sees PAT in double-digit percentage growth on both a sequential and annual basis. The company’s board of directors (BOD) will also consider the first interim dividend for fiscal year 24 on Thursday.
On Tuesday, HCL Tech appeared as the top gainer in trading ahead of its earnings. The company’s shares closed 1.99% higher at ₹1,063.50 on the BSE.
On April 20, in addition to the fourth-quarter earnings announcement and full FY23 financial report, HCL Tech’s board members will also consider paying an interim dividend for FY23-24.
During the 3rd quarter of FY23, HCL Tech published a consolidated net profit of ₹4096 crore, up 19% year-on-year. This quarter, the major IT company beat estimates thanks to strong deals won. Revenue grew 19.5% yoy to ₹26.7 billion rupees. In constant currency terms, HCL Tech reported revenue growth of 5% QoQ and 13.1% YoY. The company’s attrition rate decreased significantly to 21.7% in the third quarter of fiscal year 23.
At that time, HCL Tech had lowered its revenue and margin guide bands. In FY23, revenue growth shows that at 13.5-14% in constant currency, and the EBIT margin is now at 18-18.5%.
What to expect in the fourth quarter?
In its preliminary report, ICICI Securities said: “We expect HCL to report CC revenue growth of 6.1% in FY24E and therefore start with 5-7% annual revenue growth guidance on CC terms for FY24E”. It will be 18-19% for fiscal 2020 after seeing 18.4% in fiscal 2020. For the fourth quarter of 2020, we expect HCL’s results to be subdue due to the weak climate in the products business, and CC platforms will be the weakest in our coverage universe in terms of QoQ growth. It is currently trading at a 19% discount to NIFTY IT, which is similar to the last 16 average. Our revised 12-month price target is Rs 1,122 (Rs 79 based on 16x FY26E EPS, discounted by 12% WACC). Means 5% upside potential. Repeat, wait.”
Meanwhile, Motilal Oswal, in his report, said: “We expect HCLT to post moderate growth due to the seasonal decline of HCL Software.” It expects margins to decline by 150 bps qoq due to the seasonal decline in HCL Software. However, the brokerage believes that the company’s IT services will remain strong in 4QFY23.
Motial expects HCL Tech to generate revenue of Rs 27.2 billion in Q4 FY2023, which will grow 20.3% year-on-year. EBITDA for the quarter is expect to be Rs 6,400 crore with a margin of 23.8% and added adjusted PAT at around ₹4,100 crores, up 19% yoy and 17.4% qoq.
Also, according to B&K, management maintained guidance for service revenues to grow in the range of 16% to 16.5% in CC terms. With that say, the company posted 17.8% growth in 9MFY23, so it needs around 2% QoQ growth in Q4 FY23 to meet guidance that’s likely to happen. In general shows, HCL revenue in CC terms in the range of 13.5% to 14% year-over-year. In particular, HCL has a cross-currency tailwind in the fourth quarter.
Additionally, B&K noted that for FY23, margins will now peak at 18.5%, and management also believes that with further investment, overall margins could increase to 18.5% from 18%. B&K believes that the company can achieve this margin in the fourth quarter and even reach 19%. In 9MFY23, the margin was 18.2%.
In addition, IDBI Capital expects expected HCL revenue growth (in CC) to decline to 1% in the quarter with a 15bp cross-currency tailwind, primarily due to the seasonal decline in product revenue. At the same time, the EBIT margin may drop 99 bps QoQ, mainly due to the slowdown in revenue growth.
