HCL Technologies, ICICI Prudential Life, Cyient Q4 Results Review: HDFC Securities

HDFC Securities Institutional Equities

HCL Technologies - In-line yet relatively better

HCL Technologies Ltd. reported Q4 performance that was in line on revenue, margin and guidance. Sequential growth in services was offset by a decline in engineering research and development services and software revenue (seasonality). HCL Tech’s revenue guide implies 1.5% to 2.2% compound quarterly growth rate in FY24E. We have factored 6.5% constant currency revenue for FY24E (1.7% CQGR), supported by

1. net new total contract value of $4.4 billion in H2 FY23 and factoring $3.9 billion in H1 FY24 (net new TCV average in H1/H2 at ~$4.3 billion), supported by pipeline near an all-time high and higher large deal volume in services (10 in Q4 versus 22 in nine months-FY23) and

2. stronger demand commentary in Americas (64% of revenue) as compared to Europe (29% of revenue) conflicting with commentary of Tata Consultancy Services Ltd./Infosys Ltd., based on lower banking, financial services and insurance exposure (yet three large deal wins in Q4) and portfolio (annuity with high renewals supported by infra services).

Weakness is largely reflected in the telecom and tech vertical, which is linked to discretionary projects in ERS. HCL Tech’s valuation is supported by improved free cash flow generation in the recent period, supporting higher payout and better return metrics.

ICICI Prudential Life - Stellar quarter; all eyes on post-budget new normal for business

ICICI Prudential Life Insurance Company Ltd. registered higher-than-expected annual premium equivalent growth at 27% YoY (up 24% versus estimates), which alongside healthy value of new business margins (32%), translated into a 20% YoY VNB growth.

Strong growth in the non-ICICI Bank Ltd. channel offset significant de-growth in the ICICI Bank channel; sustained efforts at channel diversification are finally bearing fruit.

We like ICICI Prudential’s re-engineered business model, focused on a diversified product and channel mix, and industry-leading share in sum assured (FY23: 15%).

Cyient - Changing altitude; guidance impressive

Cyient Ltd. reported a strong quarter with better-than-expected organic growth in the services segment (up 3.2% QoQ constant currency), continued margin expansion and impressive guidance for FY24E. The services growth was driven by the aerospace and automotive verticals, offset by weakness in communications and medical.

Cyient is set to change gears with double-digit growth in services, led by-

1. investments in new growth areas (electric vehicle and mobility),

2. strong growth in aerospace led by maintenance, repair, overhaul upgrades and defence spending,

3. five large deal wins with best total contract value of $185 million,

4. strong order intake of $213 million (up 13% YoY),

5. recovery in communication vertical, and

6. appointment of new CEO that drives confidence.

The proposed listing of the design led manufacturing will lead to value unlocking of the manufacturing segment.

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