HCL Tech hits fresh record high ahead of Q2 results; soars 23% in one month

Analysts at HSBC Securities don't expect any change in 1.5-2.5 per cent sequential growth guidance for Q3 and Q4
Shares of HCL Technologies hit a fresh record high of Rs 887, up 2 per cent on the BSE, in intra-day trade on Tuesday ahead of its July-September quarter (Q2FY21) results due Friday, October 16. Stock of the IT consulting & services company surpassed its previous high of Rs 878.80 touched on October 8, 2020.

In the past one month, HCL Tech has outperformed the market by surging 23 per cent after the company said it expects the revenue and the operating margin for Q2FY21 to be meaningfully better than the top end of the guidance it had provided in July'2020.

"We have seen strong execution during the quarter to date, and continue to execute to the plan this month. The Revenue growth for the current quarter is expected to exceed 3.5 per cent quarter on quarter in constant currency (CC), enabled by broad based momentum across all service lines, verticals and geographies," HCL Technologies said in mid-quarter business update on September 14.

The IT major further said the earnings before interest and tax (EBIT) margin for the quarter is expected to be between 20.5 per cent and 21 per cent. Good booking momentum continues this quarter, led by life sciences & healthcare, telecom & media and financial services verticals. The pipeline continues to look healthy across service lines, verticals and geographies, it said.

"HCL Tech indicated strong execution in the quarter update while deal ramp-up to drive revenue growth of at least 3.5 per cent quarter on quarter (QoQ), higher than 1.5-2.5 per cent growth rate guiding earnings call of Q1FY21. We believe 1 per cent of revenues will be added in FY21 due to DWS acquisition. Going forward, HCL Tech may initially increase 1.5-2.5 per cent sequential revenue growth guidance for Q3 and Q4 on organic basis to 2-3 per cent," analysts at Prabhudas Lilladher said in an earnings preview note.

Those at HSBC Securities don't expect any change in 1.5-2.5 per cent sequential growth guidance for Q3 and Q4 but believe that if management alludes to higher confidence in the upper end of the guidance, that could be a positive surprise.

"We estimate 3.5 per cent constant currency (cc) growth for HCL Tech. Strong EUR and GBP should add another 170bp to USD growth. Margins should be within a narrow range as compared with Q1. We expect margins to expand marginally (20bps). The key focus areas are commentary on renewal demand for products and platforms (especially IBM IP) along with demand recovery in ER&D will be crucial," the brokerage firm said.

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