Sharekhan expects almost all leading Indian IT companies to report a sequential decline in organic revenue growth during the April-June 2020 quarter, owing to supply side constraints, existing project deferrals, pricing pressure, and push back in discretionary spends owing to weak macro sentiments. It forecasts tier-I IT companies to report sequential revenue decline of 5 per cent-8 per cent on a constant currency (CC) basis, with cross-currency headwinds of 20-70 bps.
In case of HCL Tech, the brokerage expects CC revenue to decline by 7.8 per cent quarter on quarter and cross-currency headwinds of ~20 bps. Hence, USD revenue is likely to decline by 8 per cent quarter on quarter. Revenue would be impacted owing to ramp-down of projects in asset heavy industries in ERD and supply-side impact in both ERD and BPO segments.
EBIT ( per cent) 182 BPS -198 BPS EBIT margin is expected to decline by 198 bps q-o-q despite rupee depreciation, lower traveling expenses, and cut in variable compensations, owing to lower revenue, lower pricing, and decline in utlisation.
HCL Tech is one of Sharekhan’s top largecap IT stock picks. The brokerage does not expect HCL Tech to resume FY2021E revenue growth guidance given possibilities of second wave of lockdowns. If the company provides revenue growth guidance for FY2021E, it is expected to be in the range of -2 per cent to -5 per cent.
Key monitorables according to the brokerage are: The outlook on the product business;) outlook on demand environment in IMS and ERD businesses; margin trajectory given pricing pressure and levers to defend operating margins; commentary on progress of Mode-2 and Mode-3 services; commentary on external environment and assumption on the return of normalcy in decision making cycle; commentary on deal wins and deal pipeline; DSO days given requests from customers on longer credit cycle; and capital allocation policies.
Quarterly Results Source: ETMarkets.com
For the quarter ended March 31,2020, the company reported consolidated sales of Rs 18,587 crore, up 2.49 per cent from last quarter sales of Rs 18,135 crore and up 16.24 per cent from last year same quarter sales of Rs 15,990 crore The company reported net profit after tax of Rs 3,172 crore in the latest quarter.
Promoters held 60.32 per cent stake in the company as of March 31, 2020, while FIIs held 26.42 per cent, DIIs 9.16 per cent and public and others 4.1 per cent.
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