HCL Technologies - Q3FY21 First Cut - ICICI Direct

(CMP: Rs. 1021, Mcap: Rs. 276,319 crore)

HCL Tech reported healthy margins in Q3FY21 and were above our estimates. The company has also revised its margins guidance upwards from 20-21% in FY21E to 21-21.5%. The company' revenue growth was in line with our estimate 3.5% QoQ in cc terms vs our expectation of 3.4% QoQ growth, while margins were above our estimates (22.9% vs our expectation of 20.6%). Vertical wise Technology & services (up 6.8% QoQ), Retail (up 3.7% QoQ) Manufacturing (up 5.6% QoQ) and Telecommunication (up 12.1% QoQ) drove company's topline while BFSI, lifescience and public services were broadly flat QoQ. Geography-wise Americas and Europe increased 3.2% QoQ & 6.3% QoQ, respectively. HCL won 13 transformational deals across industry verticals, including Life Sciences and Healthcare, Technology and Financial Services. The company has declared a dividend of Rs. 4 per share.

Q3FY21 Earnings Summary

Revenues in constant currency grew by 3.5% QoQ. US$ revenues increased by 4.4% QoQ to $2,617 million (vs our estimate of 4.0% growth). Revenues in rupees has risen by 3.8% QoQ to Rs. 19,302 crore (vs. our estimate of 19,242 crore). The growth in revenues was driven by Mode 2 business (up 10.9% QoQ on the back of traction in cloud native and digital programs) and Mode 3 business (Products & Platform division up 7.1% QoQ on the back of new license & renewals).

EBIT margins expanded 128 bps QoQ to 22.9% (above our estimate of 20.6% estimate) led by 82 bps expansion in gross margins and lower SG&A expenses.

PAT of Rs. 3,982 crore (above our estimate of Rs. 3,098 crore) increased 26.7% QoQ mainly led by improvement in operating margin and lower tax expenses. The company had a reversal of tax in the quarter which led to lower tax rate.

HCL Tech has revised its revenues growth guidance to 2-3% QoQ in Q4FY21E from earlier 1.5-2.5%QoQ to factor in the acquisition of DWS. However, the company has revised its margin guidance upwards from 20%-21% to 21%-21.5%

The company has reported healthy revenue growth and margins. The company's upward revision of margin guidance also bodes well. We would be revisiting our estimates and target price post the conference call.

Shares of HCL TECHNOLOGIES LTD. was last trading in BSE at Rs.989.4 as compared to the previous close of Rs. 1027.75. The total number of shares traded during the day was 904980 in over 40096 trades.

The stock hit an intraday high of Rs. 1052 and intraday low of 984.2. The net turnover during the day was Rs. 913712228.

Source : Equity Bulls

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