HCL Tech Q1 Results Review - Performance Below Expectation Due To Softness In ER&D Segment: Yes Securities

Yes Securities Report

HCL Technologies Ltd. reported muted performance that was below expectation. Both, revenue growth and Ebit margin were below estimates.

The services segment (90% of revenue) was down 1.0% QoQ in constant currency terms. The software segment was also down 3.1% QoQ in cc terms.

HCL Tech's revenue growth was led by strong performance in banking, financial services and insurance vertical (up 5.1% QoQ in cc terms). There was sequential decline in Ebit margin (down 122 basis points QoQ) led by decline in revenue and increase in selling, general and administrative.

Employee attrition continues to moderate as last twelve months attrition was down 320 basis points QoQ to 16.3%. We believe that the long-term demand story remains intact led by IT transformation and cost optimisation projects.

However, the macroeconomic factors in the U.S. and Europe remain concerning and that is reflected in clients being more watchful of the situation and consequently, that continues to impact near term revenue performance.

The decline in employee attrition and improving employee pyramid should support margin in FY24.

We estimate revenue compound annual growth rate of 10.4% over FY23‐25E with average Ebit margin of 19.1%.

We maintain our 'Add' rating on the stock with revised target price of Rs 1,228/share at 17.5 times on FY25E earnings per share.

The stock trades at price-to-earnings of 18.3 times/15.8 times on FY24E/FY25E EPS.

Click on the attachment to read the full report:

DISCLAIMER

This report is authored by an external party. BQ Prime does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of BQ Prime.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.