The strength of HCL Technologies digital business will be tested just as Tech Mahindra's was

• HCL Technologies might the one IT company to post positive quarterly results in the final leg of the financial year, according to Edelweiss.
  
• This is because over 40% of its revenue is generated by digital business.
  
• HCL Technologies share price has lost 10% of its value this year but that has recuperated most of the impact that was felt due to the coronavirus.
  

HCL Technologies is set to post its fourth-quarter earnings tomorrow and the analysts are hopeful that it won’t be in the red. “We expect most large caps to report a revenue decline, except HCL Technologies, which should see inorganic growth pick some of the slack,” said Edelweiss Equity Research analyst, Sandip Agarwal.

However, the stock has lost nearly 10% of its value this value even though most of the impact of the coronavirus has since been recuperated. “The current shutdown in the economy is unprecedented and uncertainty is the only constant,” added Edelweiss.


The positive sentiment for HCL Technologies is due to most of its revenue — over 40% — is centred around its digital business. Albeit, that was also true for Tech Mahindra which posted a massive drop quarterly drop of 32% in net profits, last week.


Last quarter, its dollar revenue was up by 2.3% quarter-on-quarter with the guidance that its yearly revenue growth will hit 16.5% to 17% in constant currency terms. It signed 12 deals in Q3 FY20, led by key industry verticals—hi-tech, manufacturing and financial services. It also launched a dedicated Google Cloud business unit to accelerate enterprise cloud adoption, which will help organisations advance their digital transformation agenda.


What remains to be seen is how much a hit will be felt on manufacturing, which is HCL Technologies second-largest vertical accounting for 27% of its revenue. The Japanese brokerage firm, Nomura, maintains its buy call for the company even after under Indian IT companies posted losses — however, has slashed the target price from ₹700 to ₹ 570 per share.

"We lower revenue estimates by 9%, margin by 70-150 bps [basis points] and EPS [earnings per share[ by 10-14% for FY21-22," it said in its report.

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