Preview: After TCS and Infosys, will HCL Tech also disappoint Street in Q4?

Analysts expect year-on-year (YoY) revenue growth in the range of 15-16 per cent, while the growth in USD terms will likely be closer to 10 per cent. Profit growth is likely to be around 40 per cent, but adjusted profit growth is likely to be lower, said analysts. Sequentially (QoQ), revenue and profits are likely to be flattish.

“We expect CC revenue growth of 0.8 per cent QoQ and cross-currency headwinds of 40 bps,” said analysts at Sharekhan. “Hence, USD revenue is expected to grow by 0.4 per cent QoQ. We expect the growth would be impacted due to weak seasonality in the product business, while IT services and ERD business are expected to continue their growth momentum. The growth in service business (IT and ERD) would be driven by the ramp up of deals won earlier.”

Analysts are also envisioning a drop in Ebit margins of up to 300 basis points YoY and 100 bps QoQ.

The bearish projection comes at a time when earnings of TCS and Infosys have disappointed the Street. Both companies performed below par, and thus their stocks have seen some heavy selling in the last few days.

“We expect softness in growth, 0.9 per cent QoQ USD, 1.4 per cent QoQ CC as healthy growth in IT services and ER&D is expected to be offset by sharp decline in P&P owing to seasonal weakness. We expect EBIT margin to decline by 85bps led by supply side pressures and lower share of high margin P&P business,” said analysts at Phillip Capital.

It added that the company may give a double-digit growth guidance and EBIT margin guidance of 18-20 per cent, while a healthy deal win momentum may continue.

Among the key things to watch out for will be:

– Large deal wins

– FY23 revenue and margin outlook

– Timeline of revival of growth in products business

– Attrition trend

– Margin headwinds in terms of supply side pressures

– Investments in different geographies

For now, analysts are largely bullish on the counter. HDFC Securities said it has factored in USD revenue/EPS CAGR at 12/13 per cent over FY22-24E with IT & BS & ERS growth at 12 per cent CAGR and P&P growth at 7 per cent.

“Prowess in cloud infra services/hyperscaler investments, intact with ER&D accelerating, strengthening digital capabilities in IT & BS and organic-led growth will be value accretive,” it added.