HCL Tech Q4 Preview: Revenue may rise, but PAT seen declining; all eyes on FY25 guidance

Consolidated net profit is likely to fall 6% sequentially, but rise by 2.8% YoY to Rs 4,094 crore.

The country’s third-largest software services exporter will release its fourth quarter and annual earnings on April 26, and the board will also consider an interim dividend payout.

Most analysts expect HCL Tech to meet its conservative growth guidance of FY24, and guide for a slightly higher growth in FY25.

Despite strong numbers in the December quarter, the company had trimmed its guidance for FY24.

The IT major projected constant currency revenue growth of 5.0-5.5% in FY24, compared to 5-6% guided earlier. This includes revenue recognition from the recently acquired German automotive engineering solutions provider ASAP Holding.

“We expect HCLTech to give FY25 revenue growth (4–6% CC YoY growth in Services) and margin (18–19%) guidance,” Nuvama Institutional Equities said.

Kotak Institutional Equities expects the company to guide for 5-7% revenue growth on an organic basis, excluding State Street divestiture and ASAP acquisition.

Here’s summarising the broad expectations of brokerage firms from the Noida-headquartered IT major.

Kotak Institutional Equities
We expect 0.2% sequential growth overall led by—(1) $30 million incremental in revenues from Verizon contract, contribution of 0.9% to growth, (2) ramp-up in rest of the services business (1.7% QoQ), and (3) $80 million sequential revenue decline in products business (2.4% drag) from seasonal weakness in products.

Net new deal wins to be in the $2-3 billion range after a relatively weak December 2023 quarter. EBIT margin to decline by 160 bps, largely driven by a decline in products business, wage revision, and lower margin of Verizon contract.

Expect the company to guide for revenue growth of 5-7% on an organic basis (excluding State Street divestiture and ASAP acquisition).

Reported growth guidance to stand at 4-6%. Expect EBIT margin guidance band of 18-19% in FY25.

We expect investor focus on (1) reasons for weak deal wins (adjusted for Verizon contract) over the past three quarters and its implications for revenues, (2) whether the guidance is back-ended or front-loaded, (3) recovery in discretionary spending in the services segment and (4) if the company can grow in line/or ahead of peers in a strong discretionary spending environment.

Nuvama Institutional Equities
HCL Tech's revenue shall grow 0.3% QoQ in CC and 0.7% QoQ in dollar terms, driven by Services (+2.4% QoQ) and P&P (-15% QoQ, seasonality impact). Services growth shall be driven by the Verizon deal (one month, $20 million) and a reversal of furloughs. EBIT margin shall decline 190 bps QoQ on seasonal margin dip in P&P. We expect HCL Tech to give FY25 revenue growth (4–6% CC YoY growth in Services) and margin (18–19%) guidance.

Nirmal Bang Equities
We expect the company to hold out revenue growth guidance for FY25 of 4-7% in CC terms and the margin guidance to be similar to FY24 (18-19% EBIT).
We are expecting 0.5% CC growth QoQ in 4QFY24 after 6.0% CC growth QoQ in 3QFY24 on the back of Products & Platforms seasonality and ASAP acquisition.

After a weak 1HFY24, HCLT revised its CC growth guidance downward from 6-8% to 4-6% (5-6%, including the ASAP acquisition) for FY24 and it further lowered the upper end of the guidance to 5-5.5% in 3QFY24, including inorganic growth.

We expect the EBIT margin to decline by 110 bps QoQ to 18.6% as the higher margin P&P business will moderate as 3Q is seasonally the best quarter for this business.

After recording the highest-ever TCV number of $3.97 billion in 2QFY24, TCV for 3QFY24 moderated to $1.93 billion and came in at the lower end of the earlier guidance range of $2-2.5 billion. For 4QFY24, we expect TCV to come in the guided range on the back of a healthy pipeline.

JM Financial
We are building 0.2% QoQ c/c revenue growth with 30 bps cross-currency tailwinds translating into a 0.5% QoQ USD revenue growth. We expect HCLT to guide for 6-8% FY25 revenue growth.

We are building in a 2.8%/1.2%/-17% QoQ growth in IT Services/ERS/IP revenues in dollar terms. We estimate $25 million of incremental contribution from the Verizon deal. Foreseeing a $70 million drop in Software revenues will likely impact margins, driving 160 basis points margin compression QoQ.

ICICI Securities
We build in 0.5% USD/0.4% CC QoQ revenue growth. We expect 2% QoQ dollar growth in the IT and business services segment (USD 33 mn incremental from the Verizon deal), 3% growth in ER&D services, and a 12% contraction in products and platforms (similar to Q4FY23) due to lack of positive seasonality from Q3FY24.

We estimate FY24E USD revenue growth at 5.4%. We expect the EBIT margin to be down 210 bps QoQ due to a 20 bps impact from wage hikes, slow growth, and products and platforms' segmental margin reverting to normal (19-20% range) after positive seasonality in Q3.

FY24E EBIT margin may be at 18.3% (within the guided range of 18-19%).

BNP Paribas
We expect 1.9% QoQ dollar revenue growth (+1.7% QoQ in CC) on the back of 1) one additional month of the Verizon deal, and 2) reversal of furloughs, partially offset by 1) subdued discretionary spending and 2) seasonally weak software business.

We model a 140 bps sequential contraction in EBIT margin to 18.3% on the back of 1) a wage hike in services, 2) a lower contribution from the high-margin Software segment, and 3) a lower margin from the Verizon deal.

Guidance: We expect HCLTech to guide for FY25 CC revenue growth of 6-8%, and to raise the EBIT margin range for FY25 to 19-20%.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times)