HCL Tech Q3 Preview: Revenue on Software Business Growth Rs. May increase up to 6.8%

HCL Technologies, India’s third-largest IT services company by market capitalization, is expected to report revenue growth of between 4.3% and 6.8% year-on-year for the quarter ended December 31, 2024. As per estimates, supporting growth in software business in Q3FY25 at Rs. 30,091 crore to Rs. 30,393 crore range through five brokerages.

The company’s net profit is expected to grow between 1.2% and 8.2% on an adjusted basis, estimates reveal.

Estimates are from five brokerages. Nomura, HDFC Securities, Ilara Capital, JM Financial and Prabhudas Leeladhar.

On the income front, HDFC Securities is the most conservative among its peers while JM Financial is the most bullish. When it comes to profit after tax (PAT), Elara has a more conservative position while HDFC Securities, the most bullish among its peers.

There is a consensus view that HCL will post the strongest growth among tier-1 companies.

Apart from the company’s revenue and PAT numbers, the Street will also look for commentary on HCL’s outlook. The discretionary demand environment for CY25 and the tonality of budget indicators could be a crucial indicator. Deal activity and pipeline will also be an important indicator, especially after the US election.

The company will announce its quarterly earnings on Monday, January 13, 2025.

Here are the top brokerages recommended:

Nomura

Among large caps, HCL Tech is expected to register the strongest growth. Japanese brokerage Nomura had forecast FY25 revenue growth of 5.2% YoY and 3.7% QoQ while estimating EBIT margin at 19.5%. This is likely a 20 bps YoY decline while a 90 bps QoQ uptick driven by seasonally strong software business.

Nomura expects 3.5% QoQ revenue growth in cc terms, led by a seasonally strong quarter for the software business. Core services may grow 1.5% QoQ. On the deal front, a range of $2-2.5 billion is seen.

Cost takeout projects, banking verticals, demand revival in developed markets and an outlook on client discretionary spending are key things to watch out for.

HDFC Securities

HDFC Securities grew 4.3% YoY and 5.8% QoQ to Rs. 30,091 crore revenue growth is estimated. Adjusted Profit After Tax (PAT) rose 8.2% YoY and 5.3% YoY to Rs. 4,580 crore can be done.

The company’s earnings before interest and tax (EBIT) rose 9.1% YoY and 4.2% QoQ to Rs. 5,852 crore can be done. Meanwhile, EBIT margin may increase by 87 bps YoY while QoQ may decline by 29 bps to 19.4%.

Echoing similar sentiments, HDFC Securities said HCLT will lead to growth and margin improvement in Tier-1 IT pack supported by software business seasonality in the third quarter. HCLT is expected to post a 4.1% QoQ CC revenue gain.

HCL Technologies is likely to revise its growth guidance upwards while margin guidance for the company should remain unchanged, the brokerage said.

Key monitorables are company commentary and the tone of the discretionary demand environment and budget indicators for CY25. Deal activity and pipeline will also be an important indicator, especially after the US election. Additionally, GCC dynamics will also be a factor in the Q3 furlough effect and competition versus deals.

Outlook on industry verticals of manufacturing and retail while progress on GenAI investments will also be important metrics. HDFC Sec marginally raises EPS estimates for HCL Tech.

Elara Capital

Within the Elara IT universe, HCL Tech is expected to report strong sequential dollar revenue growth in Q3FY25. HCL Tech’s revenue growth will be on the back of seasonally strong Products & Platforms (P&P) business. “We expect HCLT to post 3.3% sequential growth in USD terms led by its P&P business. Expect 20% QoQ growth in P&P due to seasonality,” it said in a note.

Revenue for the reporting quarter rose 5.1% YoY and 3.6% QoQ to Rs. 29,900 crore can be done. Adjusted PAT Rs. 4,403 crore, which could see a 1.2% YoY growth, registering a 4% sequential increase.

EBIT margin is seen at around 19% in Q3FY25, down 70 bps over Q3FY24 while up 50 bps over Q2FY25.

Elara has ‘Sell’ rating on HCL stock.

JM Financial

JM HCL’s October-December quarter revenue of Rs. 30,393 crore sees growth of 6.8% and 5.3% YoY and QoQ. Net profit rose 5.6% YoY and 8.5% QoQ in the reporting quarter to Rs. 4,593 crore can be done.

While EBIT grew by 3.5% YoY and 8.4% QoQ to Rs. 5,811 crore, EBIT margin is expected around 19.1%, a YoY decline of 60 bps while an increase of 50 bps QoQ.

HCL’s growth should be stronger at 5.5% CC QoQ on certain factors like software sales and inorganics.

“We estimate c.115 bps cross currency headwind for HCL. We contributed USD 20mn from one month consolidation of CTG. We are building 1.5%/1.5%/25% QoQ growth in IT Services/ERS/ Product & Platform business. in USD terms,” the brokerage said in a note.

JM said that wage hike would be the main reason.

Prabhudas Leeladhar

Prabhudas said HCL’s third quarter revenue was Rs. 30,200 which is a potential 6.2% YoY and 4.6% QoQ growth. PAT with a potential jump of 4% YoY and 6.8 QoQ to Rs. 4,500 crore is expected.

Meanwhile EBIT margin may be reported at 19.2%, a 50 bps decline and 60 bps QoQ growth. We expect 4.6% QoQ CC growth led by strong performance in its software business amid furloughs in its IT services.

Trade We expect a currency headwind of 80 bps QoQ,” JMA said in its preview note.

“We expect to win the deal in the same range of $2-2.5 billion. We also expect HCLT to maintain its organic revenue and margin guidance,” JM said while recommending an ‘Accumulate’ rating.

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