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HCL Tech’s Q3 PAT rises 19%, declares dividend of ₹10

HCL Tech’s Q3 PAT rises 19%, declares dividend of ₹10
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HCL Tech reported a 19% rise in its net profit for the quarter-ended December, to Rs 4,096 crore against Rs 3,442 crore during the same period a year ago, largely beating the pace of growth seen in its peers Infosys and TCS.

The company has also announced a dividend of Rs 10 per share, making Q3FY22 the 80th consecutive quarter of dividend payouts.

HCL Tech, however, has trimmed the upper ends of its company, services revenues and EBIT margin guidance by 50 basis points each. Company revenue guidance for FY23 now stands at 13.5-14% against 13.5-14.5% earlier. Services revenue growth for FY23 is expected to be in the range of 16-16.5%, whereas EBIT margin guidance has been narrowed to 18-18.5%.

The revision in guidance contrasts with HCL’s peer Infosys, who raised its FY23 revenue growth guidance to 16-16.5% from 15-16% in its Q3 financial review on Thursday. Brokerages like Jefferies and BNP Paribas had forecast a status quo in the IT major’s revenue and EBIT margin guidance for this financial year.

HCL Tech, like its peers, also reported a steep drop in attrition rates, to 21.7% in Q3 against 23.8% in Q2FY23. It remains higher on a like-to-like basis against 19.8% seen in Q3FY22.

Omkar Tanksale, vice-president of equities research at Axis Securities, said that the quarterly results were strong on a standalone basis. “However, if you look at the distribution of the numbers, the maximum growth has come from products and platforms. This signifies a volatile growth of sorts, and as a result, growth based solely on this vertical may not be sustainable in the long run,” he said.

Products and platforms refer to software services that an IT services firm licenses from software makers such as Microsoft and IBM, and offers as a service to clients.

Tanksale added that HCL’s quarter remains resilient otherwise, thanks to strong new deal wins — a trend that was also reflected in fellow IT firm Infosys’ December quarter earnings on Thursday.

Infosys reported a 280 basis-point drop in Q3 attrition on Thursday, to 24.3%. One basis point is one-hundredth of a percentage. 

Ruchi Mukhija, vice-president at financial services and research firm Elara Capital, concurred with Tanksale, noting that HCL’s growth in the products and platforms vertical was “more than double” of what analysts expected. She warned that more deal wins in HCL’s figures reflect their revenues and new deals being spread across the entire year, rather than a larger number of short-term deals. “This could lead to some weakness in the company revenue in the immediate future,” she said.

HCL’s rupee revenue for the December quarter rose 19.6% to ₹26,700 crore against ₹22,331 crore a year ago, mainly led by a 15.3% y-o-y uptick in the IT and business services vertical which accounts for nearly 70% of overall revenue.

Dollar revenue rose 5.3% quarter-on-quarter to $3,244 million, beating analyst expectations of 2.7-3.4% growth. On a like-to-like basis, dollar revenue was 9%.

According to a company statement, Q3 saw 17 large deals with its total contract value (TCV) or orderbook now standing at $2.3 billion, up 10% y-o-y.

“We have delivered a strong performance this quarter across all key metrics – revenue growth, margin expansion, booking growth and people metrics. Our strong revenue growth of 13.1% YoY constant currency is led by our services business which grew 15.4% YoY CC; and strong revenue growth of 5.0% QoQ CC is led by HCLSoftware. Our margins at 19.6% this quarter, increased 60 basis points YoY. The booking growth (deals) was led by IT operating model transformation, cloud adoption and large vendor consolidation deals. We are confident to deliver industry leading growth over the medium term supercharged by our positioning, our strong propositions and our passionate people,” C Vijayakumar, managing director and chief executive officer of HCL Tech said.

Operationally, EBIT (earnings before interest and taxes) rose 22.8% to Rs 5,228 crore. Margin, too, saw an expansion of 60 basis points from 19% to 19.6% y-o-y.

EBIT margin, however, has risen 165 basis points on a quarter-on-quarter basis, owing to rupee depreciation and higher performance in services business.

“Revenue at Rs 26,700 crore is up 19.6% YoY, on the back of strong services business growth of 22% YoY. During the quarter, we crossed important milestones of Rs 5,000 crore and Rs 4,000 crore for EBIT and PAT respectively for the very first time. Profitability was at all-time high with EBIT up 22.8% YoY and PAT at Rs 4,096 crore (up 19% YoY). Return on invested capital (RoIC) stands at solid 30% and 37+% for the company and services business, respectively,” said Prateek Aggarwal, chief financial officer of HCL Tech.

The company claims to have net added 2,945 employees this quarter, taking the total headcount to 2.22 lakh employees.

Shares of HCL Tech ended Thursday session at Rs 1,071.90 per share, up 1.62% against BSE IT index’s gain of 0.39%.