HCL Tech Q1 preview: IT major may post weak revenue, EBIT margin likely to decline

The earnings season has finally kickstarted with Tata Consultancy Services (TCS) among first IT companies to declare earnings on July 11. IT major HCL Tech is also set to announce its June quarter earnings on Friday.

According to analysts, the IT firm is likely to post the weakest revenue growth among its peers.

While the company is anticipated to show year-over-year growth in profit after tax (PAT), there may be a sequential decline due to project completions and a decrease in discretionary spending. The IT and business services segment is expected to be negatively impacted on a quarter-on-quarter basis.

PAT and revenue growth

Profit after tax (PAT) is projected to decrease by 5.2%, falling to ₹3,776 crore for the June 2024 quarter from ₹3,985 crore in the previous quarter.

Revenue for the quarter is projected to be ₹27,997 crore, representing a 6.5 per cent increase compared to the same quarter of the previous financial year, according to average estimates.

EBIT and deal wins

According to Kotak Institutional Equities, EBIT is likely to decline by 70 bps quarter-to-quarter (QoQ) and 10 bps year-on-year (YoY). “ We forecast 70 bps qoq and 10 bps yoy declines in EBIT margin. HCLT has disappointed so far in net new deal wins in FY2024, except for the US$2.1 bn mega deal with Verizon. This will be an area of investor focus. We forecast deal wins of US$2.5 bn. Expect the company to retain 3-5% revenue growth and 18-19% EBIT margin guidance for FY2025E," the brokerage firm said.

However, analysts anticipate that the company will uphold its FY25 guidance of 3-5% revenue growth and 18-19% margins. Additionally, HCLTech has projected a 1% impact on Q2 results due to the divestiture of the Statestreet JV.

According to Kotak, HCL Tech's new deal wins in FY2024 have been disappointing. Kotak anticipates that investors will now focus on this issue, along with the status of the recovery in discretionary spending.