Here's why analysts expect HCL Tech will outperform TCS, Infosys, and Wipro
HCL Techwill share its third-quarter earnings on January 17.
- The quarter is seasonally weak of IT companies but analysts forecast strong growth for HCL Tech.
- Key announcements to look out for are updates around large deal wins and trends for 2021.
The stock market put the company at ₹585 today morning. It has been trading marginally in the red since.
Niharika Ojha, an analyst with broking house Narnolia, believes that HCL’s software division and the ramp up of deals won in the second quarter will spell good news. “HCL Technologies is expected to post strong growth of 4.6% quarter-on-quarter in USD terms,” she forecasts.
Nirmal Bang, is more cautious, predicting 2% growth in revenue. It believes that most of HCL Technologies revenue accretion will come from IBM products bought in the last quarter. DBS Vickers Securities agrees, forecasting quarterly growth of 1.9%
HDFC Securities, however, feels that quarterly growth will be more muted. “Revenue expected at ₹$2,522 — a growth of 1.5% over the last quarter and 14.6% on a yearly basis,” says the report.
It points out that while large deals were struck in the second quarter, but large transformational deals have decelerated during the first half of 2020, as compared to 2019.
What to watch out for
Last quarter, HCL Technologies revised its guidance for revenue growth to 15-17% in constant currency terms. “It now expects organic growth to be 10-11% and inorganic growth of 6% for FY 20,” explains Ojha.
This quarter, analysts are hoping for a revision on profit margin guidance from the current 18.5-19.5%. For the third quarter, margins are expected at 19.5% in light of on-boarding new IBM employees balanced against higher amortization and rupee depreciation — a drop of around 0.5% over last quarter.
Nirmal Bang will watch out for “any commentary on macro-headwinds, especially with respect to engineering services being provided to semiconductor players who have been hit particularly hard because of the US-China trade tussle.”
Ojha believes any growth in engineering and R&D services will be supported primarily by Sankalp Semiconductor.
Performance of HCL software business, deal wins, and outlook for 2021 are the expected updates during today’s earnings call.
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