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Should you buy HCL Tech shares after Q1 earnings? Read here

HCL Technologies shares will be in focus on stock exchanges during Wednesday’s trading session. Investors will be reacting to the company’s quarterly earnings ending June 30, 2022 (Q1FY23) period which missed analysts’ expectations. In the quarter, HCL Tech’s net income declined sequentially, while the top-line front rose on the back of a healthy pipeline and growth in all verticals. Furthermore, EBIT margins were under pressure, and the company made low headcount additions in the period. While HCL Tech has maintained its FY23 guidance.

HCL Tech shares closed at 928.05 apiece down by 15.35 or 1.63% on BSE. On Tuesday, its market cap was around 2,51,841.69 crore.

In Q1FY23, HCL Tech posted a consolidated net profit of 3,283 crore down by 8.6% qoq but slightly up 2.4% on a year-on-year basis. Consolidated revenue stood at 23,464 crore higher by 16.9% yoy and 3.8% qoq. The constant currency revenue growth stood at 2.7% qoq and 15.6% yoy in the Q1 of this fiscal. Meanwhile, in the quarter, services revenue (ITBS and ERS) climbed 2.3% qoq and 19% yoy in constant currency. EBITDA margin was at 21.2%, while EBIT margin came in at 17% in the quarter under review.

Aditi Patil – Research Associate at Prabhudas Lilladher said, “Revenue growth led by ER&D 3.7% QoQ CC. IT Services grew 2% QoQ CC. Products & Platforms grew 5.1% QoQ CC.” Meanwhile, Patil added, “Margins in-line vs our and below cons estimates: EBIT margin came at 17%, -100bps QoQ (PLe: 17.1%, Cons: 17.6%). IT Services segmental margin came at 15.7%, -180 bps QoQ. ERD segment margin is at 18.7%, -40 bps QoQ and Product business margin at 22.5%, +340 bps QoQ.”

In the first quarter, the company’s TCV of new deals was at $2,045 million registering 23.4% yoy growth.

HCL Tech’s total employees count stood at 210,966 in the quarter under review – an addition of 2,089 employees from 208,877 count in the March 2022 quarter, and 34,467 employees compared to the corresponding period last year. For the quarter, the company’s attrition (LTM) climbed to 23.8% in Q1FY23 versus 21.9% in Q4FY22 and 11.8%.

For FY23, HCL Tech maintained its revenue guidance of growth between 12% to 14% in constant currency, while the EBIT margin is to grow between 18% to 20%.

Mitul Shah- Head of Research Associate at Reliance Securities said, “HCLT reported a subdued performance in 1QFY23 with EBIT margin coming in at 17%, 64bps below our estimate of 17.7%. EBIT de-grew by 2% QoQ (up 2% YoY) to 39.9 billion while EBIT margin stood at 17% (down 99bps QoQ /down 259bps YoY), 64bps below our estimate of 17.7% and 80bps below consensus estimate of 17.8%. Revenue grew by 1% QoQ/11% YoY in USD to $3,025mn, 1.1% below our estimate of $3,059 (consensus $3,050). Sequential constant currency growth came in at 2.7% vs. our estimate of 2.9%. (consensus 2.8%). Its net income stood at 32.8 billion (down 9% QoQ/ up 2% YoY), while adjusted net margin came in at 14% vs. our estimate of 14.3%.”

Should you buy HCL Tech shares?

Shah said, “HCLT reported subdued results for the quarter with margins below our expectations. Services business revenue (~89.8% of topline) grew 2% QoQ and 19% YoY in constant currency which we consider is healthy. We expect HCLT to report a healthy revenue, driven by consistent transformation deal wins, increasing focus on ER&D services, and rising share of Mode 2 business. At present, we have BUY recommendation on the stock with a 1-year target price of Rs1,351.”

HCL Tech board of directors declared an interim dividend of 10 per equity share having a face value of 2 each for the financial year FY23.

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