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  • 13 Jul 2022
  • ICICIdirect Research

HCL TECH REPORTS LARGELY IN LINE NUMBERS; HINTING AT LOWER END OF EBIT MARGIN BAND IN FY23

HCLTECH - 1838 Change: 5.55 (0.30 %)

News: The company reported 2%, 3.7%, 5.1% QoQ CC growth for the quarter for IT services, ER&D, P&P while at the company level, it reported 2.7% QoQ CC growth. Dollar revenues grew 1.5% QoQ to US$3,038 mn while rupee revenues grew 3.8% QoQ to Rs23464 crore. The company reported 180 bps QoQ margin decline in IT services due to i) (-100bps) impact on increase in subcontracting costs ii) (-50 bps) on increase in retention costs amid high attrition iii) (-35 bps) on increase in travel & visa costs while EBIT margins at the company level were down 90 bps QoQ. LTM attrition increased 190 bps QoQ to 23.8%. The company added 2,089 employees during the quarter taking its headcount to 210,966. TCV of new deal wins were at US$2054 mn ( +23.5% YoY, -9.1% QoQ). The company maintained 30,000-35,000 fresher guidance for FY23 despite it adding lower numbers i.e 6000 for Q1FY23 ( planning to add 10,000 freshers in Q2FY23).

Views: The company’s performance for the quarter was largely in line. On the demand side, the company continued its upbeat commentary on strong deal wins on a YoY basis on the basis of which it maintained revenue guidance for FY23. However, it is now hinting at the lower end of the EBIT margin guidance band for FY23, which was a negative surprise in our opinion. The rationale for that guidance is coming in the backdrop of continued high attrition (that is expected to taper down in H2FY23 only as per management), which along with wage hikes in Q2 would push costs up for the year. Our calculation shows that even reaching 18% EBIT margin seems to be an uphill task for the company and possibility of it reporting lower margin than guided band cannot be ruled out.

Impact: Negative