HCL Tech Q1 Results Review - Disappointing, But Attractive Valuation Factors In Weak FY24: Motilal Oswal

BQ Prime’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer BQ Prime’s subscribers an opportunity to expand their understanding of companies, sectors and the economy. .Motilal Oswal Report.HCL Technologies Ltd. reported a weak Q1 FY24 with revenue of $3.2 billion, down 1.3% QoQ in constant currency and 110 basis points below our estimate. Continued ramp-downs in telecom and technology verticals, mainly in engineering research and development (-5.2% QoQ in CC), led to the underperformance. Net new deal total contract value was also muted at $1.56 billion (down 25% QoQ), but the deal pipeline was at all-time high. Despite the weak quarter, HCL Tech has maintained its FY24 USD revenue growth guidance at 6.0-8.0% YoY in CC (6.5%-8.5% YoY in CC for services).Ebit margin declined 120 basis points QoQ to 17.0%, missing our estimate by a huge 140 bps, despite a 2,500 reduction in workforce (-1.1% QoQ). The miss was led by lower utilisation due to project delays and one-time travel costs. The management has retained FY24 Ebit margin guidance at 18.0-19.0%.Surprisingly, the management has retained FY24 revenue guidance despite the weak Q1 print. It is confident about the guidance in anticipation of fast scale-up of large deals in IT services and a rebound in ER&D business in Q2. But we see elevated risk to HCL Tech’s growth guidance on account of the steep ask rate over the next three quarters, and hence our estimates are 30 bp below (at 5.7% YoY CC) the lower end of the management’s guidance band. This implies a strong ~3% compound quarterly growth rate for the next three quarters..Click on the attachment to read the full report:.HCL Tech Q1 Results Review - Demand Moderation Leads Result Miss; Guidance Retained: Dolat Capital.DISCLAIMERThis 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.

HCL Tech Q1 Results Review - Disappointing, But Attractive Valuation Factors In Weak FY24: Motilal Oswal

Risk of missing FY24 guidance to weigh on near-term returns.

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