HCL Tech to share Q1 results, dividend today: 5 things to watch

HCL Technologies Ltd (HCL Tech) is scheduled to declare its June quarter results post market hours today. Investors would be eyeing, deal wins, updates to FY24 guidance, the management commentary on state of ERD demand and the reason for seeming disconnect in growth of HCL Tech versus peers and growth in apps in light of deteriorating discretionary spending.

FY24 guidance

Analysts largely expect HCL Tech to retain its FY24 revenue growth guidance of 6-8 per cent and also 18-19 per cent EBIT margin guidance for the ongoing financial year. Kotak, though, sees FY24 revenue growth at the lower end of the guidance.

Sales, profit growth

Analysts see profit and sales for HCL Technologies to grow in double-digits on year-on-year (YoY) basis. Antique Stock Broking expects profit for HCL Tech to rise 19 per cent YoY to Rs 3,912 crore compared with Rs 3,286.60 crore in the same quarter last year. Sales are seen rising 14.9 per cent YoY to Rs  26,961 crore from Rs 23,464 crore YoY.

Kotak Institutional Equities sees reported bottomline for HCL Tech rise 18.2 per cent YoY to Rs 3,886.70 crore on 14.9 per cent YoY jump in sales at Rs 26,963.20 crore.

On a sequential basis, Motilal Oswal said revenue growth is expected to remain muted, on account of the impact of productivity gains, slowdown in small deals, and the impact of cancellations in ER&D. IDBI Capital pegs sequential revenue growth of 0.25 per cent in CC terms. Softness in growth would mainly be due to one off in ER&D business and seasonally weak product revenues, it said.

"Our forecast of 1 per cent organic CC revenue growth rate is based on 3 cent QoQ growth in IT services courtesy of ramp-up in mega-deals, 2.5 per cent QoQ revenue decline in ERD and 4.1 QoQ drop in the products segment. The ERD segment will have to bear full quarter impact of programs that came to an end or were cancelled," Kotak said.

HSBC pegs HCL Tech's profit at Rs 3,776 crore, up 14.9 per cent YoY. It sees revenue rising 15 per cent to Rs 26,987 crore while the dollar revenue is seen growing 1.5 per cent sequentially. (8.5 per cent YoY).

Emkay Global sees profit growing 20.8 per cent YoY at Rs 3,965 crore and sales 14.9 per cent YoY at Rs 26,948 crore. "We are building in 1.3 per cent QoQ dollar revenue growth after factoring in 50bps cross-currency tailwinds. Sequential revenue growth is expected to be driven by software due to seasonality, while services growth is expected to be driven by IT and business services and ER&D to remain soft," Emkay Global said.

HCL Tech Q1 margin

EBIT margin will remain stable QoQ. Pressure from large deal ramp-up will be offset by operational improvements, said Kotak Institutional Equities. HSBC sees Ebit margin falling to 17.5 per cent from 18.1 per cent in the March quarter, but would be better than year-ago's 17 per cent.

"We expect Q1 margins to decline by 60 bps; Q1 margins are seasonally weak for HCL Tech owing to productivity commitments in a few of its customer contracts in the services business. Lower attrition should offset some of this impact. We expect FY24e margins of 18.2 per cent, at the lower end of its guidance (guidance of 18-19 per cent)," HSBC said.

Management commentary

Motilal Oswal Securities said commentary on the near-term demand environment and ER&D to be the key monitorables. IDBI Capital said outlook on product business, commentary on deal pipeline, especially large deals and pricing, attrition trend, margin outlook, tech spends by clients and ER&D outlook will be keenly followed.

Kotak points out 5 things to watch in management commentary. They included: "The state of ERD demand and the reason for seeming disconnect in growth of HCLT versus peers, (2) growth in apps in light of deteriorating discretionary spending; note HCLT's apps business is discretionary heavy, (3) demand for IMS, which seems to have picked up. HCLT did announce a couple of IMS mega-deals in previous quarters, (4) TCV and ACV of deal wins and (5) factors that underpin management confidence to achieve guidance.

HCL Tech interim dividend

The board of HCL Tech will also consider payment of second interim dividend for FY24. The record date for determining the entitlement of the shareholders for the payment of the aforesaid dividend would be July 20.

Following the results announcement, senior management of HCL Technologies would conduct audio conference call at 8 pm for 60 minutes to discuss the results, which would be followed by a detailed question-answer session.

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