HCLTech Q2 Results Preview: ASAP acquisition may boost revenue and margin

A significant drop in its Engineering Research & Development (ER&D) revenue led to a decline in the company's June quarter revenue. The ER&D business accounts of 15.4% of the company's overall revenue and that business saw a sequential drop of 5.2% sequentially and 1.8% year-on-year due to project ramp-down in hitech and telecom.

The September quarter will include an inorganic contribution of 0.4% to the company' revenue growth from its ASAP acquisition, while EBIT margin is likely to expand by over 50 basis points from June.

HCLTech is expected to maintain its revenue guidance of 6-8% (Services at 6.5% - 8.5%) but the management may guide towards the lower end of the margin guidance band of 18-19%.

However, analysts believe otherwise.

For financial year 2024, Ambit expects a cut in HCLTech's revenue guidance to 5-7%. Even Nirmal Bang believes that there is a fair probability of the 6-8% growth guidance being revised lower "a tad."

Recently HCLTech had announced that the wage hike cycle would be skipped for the mid-level and senior employees, while that for junior employees has been pushed back to the December quarter.

For the quarter, the company's net new deals are likely to be very high aided by the Verizon deal. That will come after a disappointing TCV number of $1.6 billion in the June quarter.

Last month, the company had announced a $2.1 billion deal with Verizon. This net new deal, spread over six years, will start contributing from November 2023.

While Kotak is forecasting TCV to be $4 billion, Morgan Stanley sees deal wins between $3 billion to $3.5 billion, both comfortably higher than the average of $2 billion over the last seven quarters.

More details about the Verizon deal, especially how the TCV was calculated as it is dependent on spending of Verizon's clients, which Verizon has little control over.

Outlook on discretionary spending

Timing and quantum of salary increases for financial year 2024.