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HCL Technology shares plunge over 5% after Q3 net profit falls 13.6%

FPJ Web Desk | Updated on: Monday, January 17, 2022, 11:44 AM IST

At 11.13 AM, shares of the company were down 5.32 percent or Rs 71.20 at Rs 1,266 a piece on the NSE. On the BSE, the shares tanked Rs 72.10 or 5.39 percent at Rs 1,265.45./Representative image | File pic
At 11.13 AM, shares of the company were down 5.32 percent or Rs 71.20 at Rs 1,266 a piece on the NSE. On the BSE, the shares tanked Rs 72.10 or 5.39 percent at Rs 1,265.45./Representative image | File pic
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HCL Technology shares fell over 5 percent. At 11.13 AM, shares of the company were down 5.32 percent or Rs 71.20 at Rs 1,266 a piece on the NSE. On the BSE, the shares tanked Rs 72.10 or 5.39 percent at Rs 1,265.45.

At 9:17 am, shares of the company were down 4.6 percent at Rs 1,276 on BSE.

On Friday, the company declared its Q3 results. It posted a 13.6 percent decline in net profit at Rs 3,442 crore in the December quarter but said it had seen all round ''stellar performance'' across verticals and geographies.

The IT major had registered a net profit of Rs 3,982 crore in the October-December 2020 quarter (as per US GAAP).

Its revenue grew 15.7 percent to Rs 22,331 crore in the quarter under review. In the year-ago period, the same stood at Rs 19,302 crore, HCL Technologies said in a regulatory filing.

The profit after tax for the third quarter ended December 2021 was higher by $59.4 million (Rs 438 crore) on account of reversal of prior years' tax provision due to change in the method of calculating a tax deduction, basis evaluation of judicial rulings, the filing said.

Excluding the above, on an annual basis, profit after tax in the latest December quarter was down 4.7 percent in dollar terms and lower by 2.9 percent in rupee terms.

On a sequential basis, net profit was 5.4 percent higher in the 2021 December quarter from Rs 3,265 crore, and topline was up 8.1 percent from Rs 20,655 crore in September quarter last year.

Brokerages verdict

JM Financials

The only disappointing part of HCLT’s otherwise strong report was the flat margin performance in 3Q despite the P&P leverage on account of 200bps sequential drop in Services margins due to wage increments and the increasing industry supply side pressures which could keep FY21 EBIT margins at the lower end of the 19-21% margin band. Internals in the form of deal wins(net new wins of USD 2.135 bn, down 5% QoQ but quite strong nonetheless!) and another quarter of 10k+ net addition continue to provide confidence on revenue growth momentum remaining intact. We tweak FY22E-24E marginally driven by 3QFY22 results.

Motilal Oswal

The margin outlook on IT Services was below our estimate as HCLT continues to struggle to absorb the impact of an adverse supply scenario. While it will be raising prices across accounts, we expect margin to stay at the lower end of its current guidance for FY23 before recovering in FY24.  On a combined basis, HCLT should deliver an FY22-24E USD revenue growth of 15.1percent, with growth almost doubling from FY20-22E levels. With profitability improving by FY24E (up 100bp v/s FY22E levels), the corresponding PAT CAGR will be 17.7 percent.We lower our FY22E EPS estimate by 1 percent due to a margin hit, but raise the same for FY23 by 2 percent due to growth acceleration.

Dalal & Broacha

Except for seasonal impact of 65 bps, no other costs will reverse in Q4 FY22 and therefore, one can EBIT margins to be at the lower end of the band. Management mentioned that one downside risk to margins is that if there is demand on the table, company might invest in talent to drive growth and given the supply crunch, this may lead to EBIT margins to dip lower by 10 to 20 bps than the 19 percent mark. Going ahead, expect conversion of deal wins to be relatively faster than before as mix of smaller deals and Cloud and Digital deals are higher versus IMS deals (which typically take longer time to realize).Pipeline is strong and management is seeing allot of rate card deals that are coming in. These deals do not get quantified until delivered.

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Published on: Monday, January 17, 2022, 11:23 AM IST