Q4FY23 Review: HCL Technologies: Respectable guidance, given the environment

21 Apr 2023 , 11:05 AM

HCL Technologies (HCLT) reported Q4FY23 USD revenue decline of 1.2% cc on a sequential basis – in line with estimates of IIFL Capital Services. This was driven by seasonal drop in P&P (-14.6% QoQ) and 3.8% QoQ decline in ER&D on some deferrals, even as IT services (+1.6% cc QoQ) was steady. EBIT margin compressed to 18.2% (-140bps QoQ), led by lower P&P and ER&D revenues. 

For FY24, HCLT guided for revenue growth of 6%-8% cc, implying revenue CQGR of 1.4% to 2.2% and EBIT margin of 18-19%. Services growth guidance is at 6.5-8.5% cc, which according to analysts at IIFL Capital Services looks healthy post Infosys’ weak guidance. Deal wins of USD2.07 billion in Q4 (-8% YoY) and 3.7k headcount addition give some visibility on growth in FY24. 

Analysts at IIFL Capital Services have cut their EBIT estimates by 2-3% though EPS cut is 7-8%, due to sharp increase in effective tax rate. Hence, 12-month Target Price is lowered to Rs 1,070 (from 1,150), valuing it at 16x 2-year forward EPS. While the stock is trading at 15.6x on FY25 estimated P/E, discount to peers has narrowed to 5%. Hence, rerating depends on consistent earnings delivery.