HCLTech Q4 Preview: Software business seasonality may drag constant currency growth; Guidance key

Shares of HCL Technologies Ltd. are in focus as the IT services major will report its fourth quarter earnings on Tuesday, April 21. Expectations remain mixed, with constant currency (CC) revenue likely to decline sequentially, largely due to seasonality in the software business, while the services segment is expected to post modest growth.

According to the CNBC-TV18 poll, dollar revenue is estimated to decline 0.76% quarter-on-quarter (QoQ) to $3,764 million from $3,793 million. However, rupee revenue is seen rising 1.9% to ₹34,553 crore from ₹33,872 crore.

Earnings before interest and tax (EBIT) is expected at ₹6,040 crore compared to ₹5,329 crore in the previous quarter, with EBIT margins improving to 17.6% from 15.7%.

HCLTech's profit after tax (PAT) is likely to rise 15.2% QoQ to ₹4,696 crore from ₹4,076 crore, aided by a low base as margins in Q3 were impacted by a one-time labour code provision of ₹956 crore.

ALSO READ | CLSA upgrades this IT stock on hopes of strong growth vs peers

That said, margins are expected to remain below the adjusted Q3 EBIT margin of 18.6%, weighed down by the impact of a one-month wage hike, weakness in the software segment and some restructuring-related costs, which may spill over into the fourth quarter.

Looking ahead, guidance will be a key monitorable. For FY27, revenue growth is expected in the range of 3%-6% YoY in constant currency terms, though brokerages like Goldman Sachs and Nomura expect a more conservative 2%-5% range.

On margins, the company is likely to guide within the 17%-19% band, according to Morgan Stanley and UBS, while CLSA sees the possibility of the company raising its margin guidance back to 18%-19%, driven by ongoing cost optimisation efforts.

Management has indicated that artificial intelligence could lead to 2%-3% gross deflation, but expects this to be offset by higher volumes and increased deal share.

For FY26, the company has narrowed its overall revenue growth guidance to 4%-4.5% YoY in constant currency, compared to an earlier range of 3%-5%. Services growth guidance has also been raised to 4.75%-5.25% from 4%-5% earlier.

EBIT margin guidance remains at 17%-18%, excluding the one-time labour code impact.

Shares of HCL Technologies were last trading 0.37% lower at ₹1,436.90 on Monday. The stock has declined over 12% so far this year.

Note To Readers

Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.