HCL Tech Q4 Preview: What to expect after weak numbers from TCS, Infosys?

After a muted set of numbers from TCS and Infosys, all eyes will be on HCL Technologies, which will release its fourth quarter earnings on Thursday, April 20.

However, if we go by the predictions, the numbers are not all inspiring, mainly on account of seasonal weakness. Services business is expected to drive growth on account of deal ramp-ups, while software revenue is expected to report a sharp decline sequentially due to seasonality.

Most analysts are expecting a sequential decline in constant currency revenue, and margins will likely contract too for the quarter ended March.

Revenue to decline
"We expect HCL Tech to deliver degrowth of 1.2% QoQ (cc), with 1.3% QoQ (cc) growth in services segment more than offset by 19% QoQ (cc) decline in P&P segment due to seasonal weakness," Jefferies said.
Reliance Securities, meanwhile, sees HCL Tech's revenue declining 1.6% QoQ in CC and 0.5% QoQ in USD — driven by a 20% QoQ decline in P&P.

EBIT margins
Jefferies estimates EBIT margins to contract by 100 basis points due to lower margins for the P&P segment. Emkay Global sees EBIT margins declining by 120 bps sequentially on account of business mix change and sharp decline in software revenue.

Guidance
HCL Tech is expected to provide a revenue growth guidance of 5-7% YoY and margin guidance of 18.5-19.5% for FY24. On profitability, expect HCL Tech to guide for 18-20% EBIT margin band.

Services revenue
The services revenue is expected to grow 1.5% in cc terms, aided by ramp-up of large deals won in the past quarters offset by ramp-downs in impacted verticals such as hi-tech and entertainment.

Things to watch out for
Investors will keep a close watch on the company's FY24 outlook, deal wins, deal pipeline and pace of deal closures. Management commentary on the demand outlook for major verticals like BFSI, manufacturing, technology, retail and healthcare will also be eyed.

Profits and revenue estimates
HCL Tech is expected to report a net profit after tax (PAT) of Rs 3,825 crore for the fourth quarter, which will be about 7% higher than that of the corresponding quarter. On a sequential basis, profit is expected to fall. Revenue is seen to be at Rs 26,467 crore for the March quarter, growth of 17% year-on-year.

For the December quarter, HCL Technologies posted net profit of Rs 4,096 crore, while revenue for the quarter stood at Rs 26,700 crore. HCL Tech has risen nearly 2% so far this year, as against 3.15% decline in benchmark Nifty.