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HCL Technologies Q4 preview: EBIT margin may drop; watch for deal pipeline

Key monitorables include FY21 revenue and margin guidance, updates on business continuity in the wake of Covid-19-led delivery disruption.
HCL Technologies is slated to announce its March quarter results for financial year 2019-20 (Q4FY20) on Thursday, May 7. The company, according to analysts, may see a decline in earnings before interest and tax, and amortisation (EBIT) margins on a sequential basis on account of some revenue hit due to disruptions caused by the Covid-19 outbreak. Rupee depreciation, however, will be a tailwind, they say.

Here's a look at what brokerages expect from HCL Tech's March quarter results

Emkay Global Financial Services

The brokerage expects net sales (revenue) to rise 2.3 per cent quarter-on-quarter (QoQ) and 16 per cent year-on-year (YoY) to Rs 18,552.7 crore. Earnings before interest, taxes, depreciation, and amortisation (EBITDA) is seen at Rs 4,508.3 crore, up 0.9 per cent QoQ and 25.3 per cent YoY. EBITDA margin is expected to grow 180 basis points (bps) YoY but a decline of 35 bps QoQ to 24.3 per cent. Net profit (profit after tax) is seen at Rs 2,931.3 crore, up 14.1 per cent YoY and down 3.5 per cent QoQ.

Key monitorables include FY21 revenue and margin guidance, updates on business continuity in the wake of Covid-19-led delivery disruption, and capital allocation policy.

Edelweiss Securities

The brokerage expects HCL Tech to report a flat quarter (constant currency) in terms of revenues for the quarter under review. It has built in a decline of 90bps in EBITDA margin at 23.7 per cent. In US dollar terms, revenue is seen at $2,546 million, up 0.1 per cent QoQ and 11.8 per cent YoY.

Revenue in rupee terms is projected to grow 16.1 per cent YoY and 2.3 per cent QoQ at Rs 18,556.9 crore. EBITDA is expected to fall 1.6 per cent QoQ but rise 22.3 per cent YoY at Rs 4,398 crore. Net profit or PAT is seen at Rs 2,783.5 crore, down 8.6 per cent QoQ but up 8.1 per cent on YoY basis.

ICICI Securities

"Taking into account management commentary on the limited impact of Covid-19 in Q1FY21E and bookings on track for this quarter, we expect dollar revenues to grow 0.9 per cent QoQ to $2,566 million," the brokerage said in a note. Rupee revenues are expected to grow 2.5 per cent QoQ and 16.3 per cent YoY to Rs 18,595 crore. EBIT margins could expand 20 bps QoQ to 20.4 per cent owing to receding impact of partial wage hike in Q3 and rupee benefit, it notes.

EBITDA is seen at Rs 4,519 crore, up 25.6 per cent YoY and 1.1 per cent QoQ while PAT is estimated to grow 17 per cent YoY at Rs 3,004 crore. On a sequential basis, however, the numbers are expected to fall 1.1 per cent.

Investor interest: Annual revenue and margin guidance in the midst of ongoing crisis, momentum in the IMS business, impact on deal pipeline amid lockdown and work from home policy

Stock performance

For the quarter under review, shares of HCL Tech have plunged 23.6 per cent at the bourses against 28.65 per cent slide in the benchmark S&P BSE Sensex.

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