Muted IT services growth a concern, margin woes remain

HCL Technologies Ltd. reported revenue growth of 2.7% in constant currency terms (our estimate: 2.6%), though IT services’ growth was muted, at 2.0% in CC, factoring in Q1 seasonal impact, while product and platform business recovered on a low base, delivering 5.1% CC growth.

Growth guidance retained. Operating profit margin at 17.0% was below estimate (our estimate: 17.5%), primarily due to IT services business, where margins witnessed a sharp drop of 180 bps QoQ, due to supply side pressures (including sub-con cost) and impact of lower revenue growth from seasonality.

While HCL Tech reiterated margin band of 18% – 20% for full year FY23, management alerted on achieving a lower end of margin band due to Q1 impact.

Net new total contract value wins stood at $2.1 billion in Q1 (down 9.1% QoQ), and up 23.4% YoY, while annual contract value was higher by 17.9% YoY. Bloomberg