HCL Technologies trades flat ahead of Q3 nos; here's what analysts expect

Paring all its early losses, the stock of HCL Technologies was trading flat in the morning trade on Friday ahead of its December quarter (October-December) results of the financial year 2019-20 (FY20) due later in the day. 

The stock hit a low of Rs 580, down 2.3 per cent during the session. However, at 10:41 am, shares of the company were trading at Rs 594.30 apiece on the BSE, up 0.15 per cent. In comparison, the S&P BSE Sensex was trading at 42,049.65 levels, up 117 points or 0.28 per cent.

For the quarter under review, analysts at Centrum Broking expect the company to deliver 1.8 per cent constant currency (CC) revenue growth. Conversion of IBM IP revenues and capital allocation (increase in payout ratio) remains key metrics to watch in the results announcement. The brokerage further says HCL Tech is likely to retain constant currency revenue growth guidance of 15 per cent - 17 per cent for FY20E.

"Cross currency would be a tailwind of 40 basis points (bps). Hence, US dollar revenue growth could be 2.2 per cent QoQ in Q3FY20E. We model earnings before interest and tax (EBIT) margin at 19.6 per cent, down 40bps QoQ. Traction in IBM IP revenues would be watched," the analysts said.

In rupee terms, net sales (revenue) is expected to come in at Rs 18,112.2 crore, up 3.3 per cent QoQ and 15.1 per cent YoY. Net profit or profit after tax (PAT) is estimated at Rs 2,726.2 crore, up 2.9 per cent QoQ and 4.4 per cent YoY. PAT margin is seen at 15.1 per cent, down 5 bps QoQ and 150 bps YoY. 

Nirmal Bang Securities has built in 2 per cent QoQ CC revenue growth and nearly 23bps cross-currency tailwind, resulting in revenue growth of 2.2 per cent in US dollar terms. A large part of this strong growth will come from revenue accretion of the IBM products that were bought as this would be a seasonally strong quarter for IP sales. In rupee terms, revenue is estimated at Rs 18,092.9 crore, up 3.2 per cent QoQ and 15.2 per cent YoY. EBIT margin is seen at 21.2 per cent. Reported PAT is expected at Rs 2,978.6 crore, up 12 per cent QoQ and 14.1 per cent YoY.

In the October-December period, shares of HCL Tech have gained over 5 per cent as against 6 per cent rise in the Nifty 50 index. The NIfty IT index, on the other hand, has added 0.8 per cent. 

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