HCL Tech Q2 Preview: Will the IT major narrow its guidance? 5 things to watch out for

IT services major HCL Tech is expected to announce its September quarter results on Monday, October 12, with profit likely to grow 12% year-on-year (YoY) and revenue 16%, according to an average of seven brokerages. The IT major is expected to get support from acquisitions, deal ramp-ups and seasonal strength in the second quarter.

Brokerages expect the company to post sequential constant-currency revenue growth of nearly 2.7-3% in Q2, helped by inorganic contributions from the HPE Telco Solutions business and the Jaspersoft acquisition. The key question for investors will be whether the company raises or narrows its FY27 revenue growth guidance, and what it says about discretionary spending, large deal closures, artificial intelligence-led pricing pressure and margin sustainability.

Emkay expects HCL Tech to report sequential dollar revenue growth of 3%, factoring in around 100 basis points of contribution from HPE Telco and Jaspersoft, along with 10 basis points of cross-currency headwinds. The brokerage expects EBIT margin to expand 70 basis points sequentially.

Jefferies expects revenue to grow 2.7% quarter-on-quarter in constant currency, including about 100 basis points of inorganic contribution. It expects the services business to grow 2.5% and the software segment to grow 4%. The brokerage sees EBIT margin rising about 80 basis points sequentially.

JM Financial is also building in 3% constant-currency growth, with cross-currency headwinds reducing dollar revenue growth to 2.8%. It expects inorganic contribution of about 90 basis points in the quarter, including 70 basis points from HPE Telco and 20 basis points from Jaspersoft.

Motilal Oswal expects consolidated revenue to rise 3% sequentially in constant currency, helped by a nearly 1% contribution from acquisitions. It expects EBIT margin to expand 120 basis points to about 18.1%, supported by the usual seasonal improvement in Q2.

Meanwhile, Nuvama expects constant-currency growth of 2.7% and dollar revenue growth of 2.6%, driven by IT services and engineering research and development (ER&D). It sees an inorganic contribution of about 80 basis points and margin expansion of 70 basis points, aided by revenue growth and currency benefits.

Kotak expects organic constant-currency revenue growth of 2% sequentially, led by the ramp-up of the Guardian Life deal and seasonal strength. It expects the HPE Telco Solutions and Jaspersoft acquisitions to add 110 basis points to revenue. The brokerage also expects strong deal total contract value of $3.75 billion, helped by a €1 billion mega deal and the large Guardian Life deal.

Guidance likely to be revised

HCL Tech had earlier guided for revenue growth of 1-4%. Brokerages now expect a revision or narrowing of the guidance following the acquisitions. Kotak expects the company to raise its overall revenue growth guidance to 3-4%, with organic growth guidance at 2-3%.

Emkay expects HCL Tech to revise its services growth guidance to 3.5-4.5% and overall constant-currency revenue growth guidance to 3-4%, while retaining its EBIT margin guidance of 17.5-18.5%.

Jefferies expects the company to narrow its FY27 services revenue growth guidance by 50 basis points to 2-4% and maintain its margin guidance. Nuvama expects HCL Tech to revise its services growth guidance to 2.5-4%, while trimming its margin expectations to the lower half of the 17.5-18.5% range.

Key monitorables

Margin commentary will be closely tracked, as acquisitions may boost revenue but dilute profitability. Kotak expects EBIT margin to remain stable despite rupee depreciation, as currency benefits may be offset by acquisition-related dilution. JM Financial said operational efficiencies could support margins, but investments and acquisitions may act as headwinds.

Motilal Oswal expects BFSI and hi-tech to remain relatively resilient, while manufacturing, telecom and retail may remain subdued. It also expects weakness in discretionary spending to persist. Emkay said investors will watch for signs of a recovery in discretionary spending in the second half and whether macroeconomic and geopolitical uncertainty is slowing client decision-making.

AI will be another key theme. Analysts will look for updates on AI-led revenue compression, which Motilal Oswal estimates could have a 2-3% impact on the portfolio, and progress in building new revenue streams to offset that pressure. Emkay will track adoption of HCLTech’s AI Force platform, customer commitments to AI data centre investments and any changes in the company’s hiring strategy due to AI.

Disclosure: This article has been written by Podishetti Akash, who is not a SEBI-registered Research Analyst or an Investment Adviser. Podishetti Akash and his ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclosures here.
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