HCL Tech’s Margin Miss, No Hike In Growth Guidance Disappoint Analysts
An employee works on a laptop computer at an office in Bengaluru, India. (Photographer: Dhiraj Singh/Bloomberg)

HCL Tech’s Margin Miss, No Hike In Growth Guidance Disappoint Analysts

HCL Technologies Ltd.’s less-than-estimated revenue and margin in the first quarter and no increase in full-year growth guidance disappointed analysts, prompting a few of them to cut their earnings forecast for the software services provider.

The IT company’s revenue rose 2% sequentially to Rs 20,068 crore in the April-June period, while that in constant currency increased 0.7%. But a higher other income and lower tax rate, besides deal wins, aided its first-quarter profit.

HCL Tech’s margin expanded to 19.6% from 16.7% in the preceding three months but fell short of the Bloomberg consensus forecast of 20.3%.

The company has maintained its revenue and EBIT margin guidance for the ongoing fiscal. It expects revenue to grow in double digits in constant currency in FY22, while EBIT margin is forecast to be between 19.0% and 21.0%.

Also read: HCL Technologies Q1 Results: Profit Jumps Nearly Threefold; Margin Expands

Here’s what some of the key brokerages have to say about HCL Tech’s first-quarter results...

Morgan Stanley

  • Rates equal-weight with a target price of Rs 1,065 apiece.

  • Q1FY22 results stood out versus peers in terms of: slower QoQ growth; lack of positive surprises on F22 guidance; and weak margins YoY.

  • Expects large valuation discount to persist versus larger peers in the absence of any rise in revenue growth estimates.

CLSA

  • Rates ‘buy’ with a target price of Rs 1,180 apiece.

  • Attractive risk-reward at 17x FY23 EPS.

  • While revenue miss disappoints, the research firm attributes it to transient factors and expects momentum to come back strongly in Q2FY22.

  • Momentum to be driven by ramp-up of large deals won in 4QFY21 and clawback of Q1FY22 revenue slippage.

  • Deal wins in Q1FY22 were healthy with an all-time high pipeline.

  • Trims FY22/FY23F EPS estimates by 2%/1%.

UBS

  • Rates ‘sell’ with a target price of Rs 855 apiece.

  • Q1 miss unlikely to please as FY22E guidance remains unchanged.

  • Given the miss on revenue and margin, and failure to quantify FY22 growth guidance, the brokerage expects cuts to consensus forecasts, which could spur a negative reaction for the stock.

Jefferies

  • Maintains ‘buy’ but cuts price target to Rs 1,150 from Rs 1,180 apiece.

  • Q1 FY21 revenue, EBIT margins and PAT all missed estimates.

  • Cuts estimates by 2-4% to factor the miss.

  • Management indicated that revenue will recover in Q2 on the back of strong deal bookings and net hiring.

  • Maintained their FY22 growth guidance of double-digit growth.

  • Margin was hit by Covid-related costs, which should reverse in Q2.

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