For HCL Tech, meeting FY24 guidance could be a tall order

livemint.com:

HCL Technologies Ltd posted weak June quarter (Q1FY24) earnings, disappointing on key metrics. In constant currency terms, Q1 revenue fell 1.3% sequentially, missing analysts’ expectations.  The company is witnessing consolidation and rationalization of spend in big technology clients which has impacted performance in key verticals such as ER&D, the management said. The total contract value of new deals declined to $1.6 billion in Q1FY24, analysts note that this metric has fallen below the $2 billion mark for the first time in the last eight quarters.

That said, the deal pipeline is healthy and continues to be driven by efficiency-led programs. While the deal intake remains lumpy, the management is hopeful that the deal softness seen in Q1FY24 would be covered up going ahead. In tandem, the HCL management has maintained its 6-8% constant currency revenue growth and 18-19% Ebit margin guidance for FY24.

Ebit is earnings before interest and tax. Ebit margin in Q1F24 came in at 17%, lower than consensus estimates. Note that there were fears of the company trimming FY24 guidance amid subdued global macros.

While that has not played out yet, analysts caution that meeting this target could be a tall task for the company in the current scenario. “We reckon that HCLT’s annual revenue guidance of 6-8% growth will be at the lower-end (including inorganic) and the margin can still be closer to mid-point (deferral/cancellation of wage hike)," said analysts at HDFC Securities Ltd in a report. “HCL’s growth acceleration in H2FY24 has to be fairly steep to meet the guidance and offset the headwinds in Q2 of soft Q1 bookings and full-quarter impact of the Telecom vertical (guidance implies CQGR of 2.8 to 4% over Q2-Q4FY24E)," it added.