HCL Technologies Q4 preview: EBIT margin may drop; watch for deal pipeline

HCL Technologies is slated to announce its March quarter results for financial year 2019-20 (Q4FY20) on Thursday, May 7. The company, according to analysts, may see a decline in earnings before interest and tax, and amortisation (EBIT) margins on a sequential basis on account of some revenue hit due to disruptions caused by the Covid-19 outbreak. Rupee depreciation, however, will be a tailwind, they say.

Here’s a look at what brokerages expect from HCL Tech’s March quarter results

Emkay Global Financial Services

The brokerage expects net sales (revenue) to rise 2.3 percent quarter-on-quarter (QoQ) and 16 percent year-on-year (YoY) to Rs 18,552.7 crore. Earnings before interest, taxes, depreciation, and amortisation (EBITDA) is seen at Rs 4,508.3 crore, up 0.9 percent QoQ and 25.3 percent YoY. EBITDA margin is expected to grow 180 basis points (bps) YoY but a decline of 35 bps QoQ to 24.3 percent. Net profit (profit after tax) is seen at Rs 2,931.3 crore, up 14.1 percent YoY and down 3.5 percent QoQ.

Key monitorables include FY21 revenue and margin guidance, updates on business continuity in the wake of Covid-19-led delivery disruption, and capital allocation policy.

Edelweiss Securities

The brokerage expects HCL Tech to report a flat quarter (constant currency) in terms of revenues for the quarter under review. It has built in a decline of 90bps in EBITDA margin at 23.7 percent. In US dollar terms, revenue is seen at $2,546 million, up 0.1 percent QoQ and 11.8 percent YoY.

Revenue in rupee terms is projected to grow 16.1 percent YoY and 2.3 percent QoQ at Rs 18,556.9 crore. EBITDA is expected to fall 1.6 percent QoQ but rise 22.3 percent YoY at Rs 4,398 crore. Net profit or PAT is seen at Rs 2,783.5 crore, down 8.6 percent QoQ but up 8.1 percent on YoY basis.

ICICI Securities

“Taking into account management commentary on the limited impact of Covid-19 in Q1FY21E and bookings on track for this quarter, we expect dollar revenues to grow 0.9 percent QoQ to $2,566 million,” the brokerage said in a note. Rupee revenues are expected to grow 2.5 percent QoQ and 16.3 percent YoY to Rs 18,595 crore. EBIT margins could expand 20 bps QoQ to 20.4 percent owing to receding impact of partial wage hike in Q3 and rupee benefit, it notes.

EBITDA is seen at Rs 4,519 crore, up 25.6 percent YoY and 1.1 percent QoQ while PAT is estimated to grow 17 percent YoY at Rs 3,004 crore. On a sequential basis, however, the numbers are expected to fall 1.1 percent.

Investor interest: Annual revenue and margin guidance in the midst of ongoing crisis, momentum in the IMS business, impact on deal pipeline amid lockdown and work from home policy

Stock performance

For the quarter under review, shares of HCL Tech have plunged 23.6 percent at the bourses against 28.65 percent slide in the benchmark S&P BSE Sensex.

―Business Standard