HCL Tech beats estimates across parameters in Q3. How may the stock react?

The IT major garnered a consolidated net profit of ₹4,096 crore up by 19% from ₹3,442 crore a year ago same period. Sequentially, the PAT was up by 17% from ₹3,489 crore in September 2022 quarter. EBIT margin expanded by 165 bps sequentially to 19.6%, while the net margin climbed 117 bps QoQ to 15.3%.

In terms of the top-line front, the company posted a consolidated revenue from operations that stood at ₹26,700 crore in Q3FY23 up by 19.5% from ₹22,331 crore in Q3 of FY22. Compared to September 2022 quarter, the company’s revenue recorded 8.2% growth. In terms of constant currency, HCL Tech posted revenue growth of 5% QoQ and 13.1% YoY. Its Services Revenue (ITBS and ERS) is up 2.2% QoQ and 15.4% YoY in constant currency.

Furthermore, the company’s attrition rate dropped significantly to 21.7% in Q3FY23 compared to the 23.8% level which stayed during Q2 and Q1 of FY23. However, HCL Tech’s net addition slowed down to 2,945 employees in Q3 taking the total headcount to 222,270 employees in Q3FY23.

Also, the company has announced a fourth interim dividend of ₹10 per equity share having a face value of ₹10 each for the financial year 2022-23. The record date to determine eligible shareholders for the dividend benefit is set on January 20, while the company plans to pay this dividend on February 1st.

Mitul Shah, Head of Research at Reliance Securities said, “HCLT reported a strong performance across the parameters in 3QFY23 with EBIT margin coming in at 19.6%, 112bps above our estimates of 18.5%.”

Shah added, “revenue grew by 5% QoQ/9% YoY in USD to $3,244 million, 1.4% above our estimate of $3,198. Sequential constant currency growth came in at 5% vs. our estimate of 3.3%. Its net income stood at Rs40.9bn (up 17% QoQ/up 19% YoY), while its net margin came in at 15.3% vs. our estimate of 14.6%. New Deal TCV stood at US$2,347 million vs. $2,384 million in 2QFY23 (up 10% YoY).”

HCL Tech’s management revised its FY23 revenue guidance to 13.5%-14% (versus earlier 13.5-14.5%) in constant currency terms and EBIT margin guidance of 18-18.5% (versus earlier 18-19%).

Shah added, “HCLT reported strong results for the quarter with margins above our expectations. Services business revenue (~89.8% of topline) grew 2.2% QoQ and 15.4% YoY in constant currency, which we consider healthy. We expect HCLT to report a healthy revenue, driven by consistent transformation deal wins and increasing focus on ER&D services. At present, we have BUY recommendation on the HCLT, while earning upgrade and TP revision is on card.”

Meanwhile, Manish Chowdhury head of research at Stoxbox said, though some caution prevails evidenced from the narrowing of revenue and EBIT margin guidance for FY23, we believe that most of the operating metrics (revenue, margins, bookings, and people) are slowly witnessing revival or stability and not showing further signs of deterioration. In the event of an improved global economic outlook going forward, the company is likely to be at the forefront of a revival in the IT space.

On BSE, HCL Tech shares closed at ₹1,071.90 apiece up by 1.62%. The company’s market cap is near ₹2.91 lakh crore.

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