HCL Tech Q2 Results Preview: FY24 Guidance Likely To Be Narrowed; To Recommend 3rd Interim Dividend

HCL Technologies' share price ended lower on Wednesday ahead of their Q2 numbers for FY24 which will be announced on Thursday. Apart from this, the company will also be considering the recommendation of a third interim dividend for the fiscal year. Despite muted growth in the IT services business, HCL Tech's overall topline is expected to have a decent performance in the tier-1 IT sector. A delay in wage hikes is likely to lift HCL's margins, however, experts believe the company may narrow down its FY24 guidance.

On BSE, HCL Tech shares closed at Rs 1245.75 apiece, down by 1.24% on Wednesday. Its market cap is over Rs 3.38 lakh crore.

HCL Tech is in focus ahead of its Q2 numbers. On October 12th, HCL Tech will announce its Financial Results for quarter and half-year ending September 30, 2023.

Apart from this, the company will declare a third interim dividend for the fiscal It has already set October 20th as the record date to determine eligible shareholders for the third interim dividend payout.

The IT player has already paid a first and second interim dividend of Rs 18 per share (900%) and Rs 10 per share (500%) for the financial year 2023-24 so far. During the financial year FY23, the company paid a total dividend of 2400% aggregating to Rs 48 per share.

Here's what to expect from HCL Tech Q2 earnings.

In its Q2 preview note, IIFL Securities said, "We forecast HCLT's revenues to grow by 1.1% cc QoQ (+0.6% cc QoQ organic) in 2Q, as IT services growth remains muted. We expect margins to expand 50bps QoQ, driven by delay in wage hikes for junior employees. We expect HCLT to narrow down FY24 revenue growth guidance to 6-7% (from 6-8%) cc YoY and reiterate EBIT margin guidance of 18-19%."

During the announcement of Q1FY24 earnings, HCL Tech had forecasted revenue growth in the range of 6% to 8% YoY in constant currency for the full-year FY24. While constant-currency IT services revenue growth was predicted in the range of 6.5% to 8.5% YoY. Also, EBIT margin was estimated between 18% to 19%.

Further, in Q2FY24, Incred Equities believes that HCL Tech's constant-currency revenue growth is likely to be aided by the ramp-up of large deals in IT services and ASAP Group acquisition to aid ER&D services revenue. Also, growth to help EBIT margin partially offset by large deal ramp-up and acquisition integration. The brokerage believes that FY24F revenue & margin guidance, outlook on services & P&P business, and capital allocation.

Also, JM Financial has built 0.8% QoQ c/c revenue growth for HCL Tech in Q2FY24, with ~20 bps cross currency headwinds translating into a 0.6% QoQ USD revenue growth. It added, "We have built one-month revenue contribution from ASAP acquisition aiding growth by c.50bps; we organic growth to be flattish."

Notably, JM Financial is not building any wage hike in this quarter and expects EBIT margins of HCL to improve by 27 bps QoQ to 17.2% as operational efficiency will likely be partially offset by lower ASAP margins.

That being said, HDFC Securities estimates revenue of Rs 27,010 crore for HCL Tech, up by 2.7% QoQ and 9.4% YoY. Adjusted PAT is factored at Rs 3,667 crore, with growth projection of 3.8% QoQ and 5.1% YoY. EBIT is seen at Rs 4,694 crore with margin estimated at 17.4%.

During the first quarter of FY24, the company posted a consolidated revenue of Rs 26,296 crore, registering a growth of 1.2% QoQ and 12.1% YoY. In constant currency, the revenue was down by 1.3% QoQ but climbed 6.3% YoY. EBIT stood at Rs 4,460 crore, declining by 7.8% QoQ but up y 11.7% YoY. Net income stood at Rs 3,534 crore, falling by 11.3% QoQ but higher by 7.6% YoY.

In Q1FY24, the company won 18 large deals with TCV (new deals) at $1,565 million. The company said its pipeline was at an all-time high, up by 17.7% QoQ and 26.2% YoY. However, in the quarter, the company laid off 2,506 employees, taking its total headcount to 223,438 employees. The LTM attrition rate dipped by 7.5% YoY to 16.3% in the quarter.

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