HCL Q3 takeaways: Upgrade in FY21 guidance, order wins & more

HCL Q3 takeaways: Upgrade in FY21 guidance, order wins & more

NEW DELHI: HCL Technologies on Friday upgraded its Ebit margin guidance for FY21. Suggesting that the technology sector is in the midst of a massive digitisation wave, the IT firm said it won 13 transformational deals during the December quarter. The IT major’s revenues for the quarter beat Street estimates. A strong expansion in margin, despite the quarter seeing wage hikes, impressed the Street. Here are the key takeaways from the Q3 results.

Upgrade in guidance

HCL Technologies said it sees Ebit margin at 21-21.5 per cent for the full financial year. This is against the guidance of 20-21 per cent Ebit margin the company gave while announcing its September quarter results.

The company has guided for a sequential 2-3 per cent revenue growth in constant currency for the March quarter, which includes contribution from its recently acquired Australian IT firm DWS. Earlier, while announcing its September quarter results, the IT firm had expected the third and fourth quarter constant currency growth to remain in the 1.5-2.5 per cent range. The CC revenue growth in December quarter stood at 3.5 per cent and in September quarter at 4.5 per cent. It was down 7.2 per cent in the Covid-hit June quarter.

Deal wins

The IT firm reported 13 transformational deal wins across industry verticals, including life sciences and healthcare, technology and financial services in in December quarter. This is against 15 deal wins in the September quarter. The company’s earnings release did not provide the total contract value (TCV) for the quarter. The senior management of HCL Technologies will conduct an audio conference call at 5 pm to discuss in detail the Q3 results.

What the management said?

HCL’s President & CEO Vijayakumar said that the quarterly performance at the IT firm was driven by a robust momentum in mode 2 and 3 businesses led by digital, cloud and products & platform segments.

“Our results reflect the success of the strategic investments we have made over the years including unique ecosystem constructs with all Cloud Hyperscalers, organic and inorganic investments in a broad-based IP and Platforms portfolio and an enterprise digital transformation value proposition that is truly integrated and differentiated,” he said.

Calling technology as a key enabler during the pandemic, Chief Strategy Officer Shiv Nadar said the technology sector is in the midst of a massive digitisation wave, with more global enterprises embracing digital transformation to address the disruption of these unprecedented times.

Vertical & geographic performance

In case of geographies, US and Europe continued to perform well on a sequential basis with a growth of 3.2 per cent 6.3 per cent, respectively. ‘Rest of the world’ category did not fare well with a negative growth of 4.5 per cent. In terms of verticals, telecom saw 12.1 per cent growth sequentially, while retail & CPG reported 3.7 per cent growth. Lifesciences & healthcare reported a flat growth rate, while public services witnessed 0.5 per cent growth sequentially.

Overall, financial vertical contribution in the overall sales fell sequentially to 21.4 per cent in December quarter from 22.1 per cent in the September quarter. Its share stood 21.6 per cent in the year-ago quarter. The contribution from manufacturing rose to 18.1 per cent from 17.3 per cent sequentially, but was lower compared with year-ago’s 20.9 per cent. The contribution from telecom vertical also improved sequentially but fell on YoY basis.

Covid initiatives

HCL Tech said that in line with its strategy to ensure a safe ‘return to office’, a calibrated plan based on vaccine availability and government guidelines by geography is being evaluated.

“This strategy will be supported by the implementation of innovative technology solutions to ensure a safe and secure workplace, in line with global best practices and Covid-19 guidelines,” it said.

Analyst take

Jyoti Roy of Angel Broking said that HCL Tech’s 4.4 per cent QoQ growth in dollar terms was ahead of his estimates of $2,598 million.

“The management has increased their revenue growth guidance for the March quarter to 2-3 per cent in constant currency terms. While the numbers were marginally ahead of our estimates in terms of revenue growth, the expansion in margins despite wage hikes during the quarter was a pleasant surprise. We continue to remain positive on HCL Technologies and have a target price of Rs 1,180 on the stock,” he said.

At 10.45 am, the stock was ruling 1.26 per cent lower at Rs 1,014.75 am.

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