HCLTech Shares Tumble 9% as Marginal Guidance Upgrade Signals Weak Q4 Growth

resr 5paisa Research Team

Last Updated: 14th January 2025 - 01:56 pm

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HCLTech shares plummeted over 9% on January 14, marking their steepest single-day decline in nearly a decade, following the company’s Q3 earnings announcement. Despite largely in-line quarterly earnings, the company's updated revenue guidance for fiscal year 2025 hinted at weaker growth prospects for Q4, leading to widespread disappointment among investors and analysts.

Revenue Guidance and Market Reaction

HCLTech shares revised its revenue growth guidance, raising the lower end by 100 basis points to a range of 4.5-5% in constant currency terms. However, this marginal upgrade fell short of market expectations, particularly as the updated guidance implied a softer exit rate for Q4. The revision was attributed to a planned scale-down of a significant telecom deal in Q4 and delays in ramping up discretionary projects, as explained by CEO C Vijayakumar.

At 09:36 am, HCLTech shares were trading at ₹1,804.65 on the NSE, reflecting the market's negative reaction to the guidance. The stock’s sharp decline highlights investor concerns about the company's growth trajectory amid an environment of improving demand for IT services.

Brokerage Perspectives on Guidance and Performance

Brokerages have largely interpreted the guidance update as a sign of weaker-than-anticipated Q4 growth. Jefferies highlighted that despite optimistic management commentary on Total Contract Value (TCV) conversions and discretionary spending, the revised guidance points to a subdued Q4 performance. Similarly, MOFSL emphasized concerns over the slower ramp-up of discretionary deals during the January-March period, which is particularly concerning given the increasing traction of short-cycle deals.

Quarterly Earnings and Financial Metrics

HCLTech's consolidated net profit for the third quarter rose by 8.4% sequentially to ₹4,591 crore, while revenue increased by 3.6% to ₹29,890 crore. These figures slightly missed the consensus estimates from a Moneycontrol poll of nine brokerages, which had projected revenue at ₹30,135 crore and net profit at ₹4,596 crore for Q3.

The company also reported an expansion in EBIT margins, which grew by 93 basis points sequentially to 19.5%, surpassing its guidance band. Despite this positive development, the retention of EBIT margin guidance at 18-19% for the full year did little to alleviate concerns about revenue growth.

Conclusion

The market's reaction to HCLTech's marginal guidance upgrade underscores the challenges the company faces in sustaining growth amid evolving market dynamics. While the Q3 earnings met most expectations, the weaker growth outlook for Q4 has raised red flags for investors and analysts alike. Moving forward, HCLTech will need to address the delays in discretionary projects and contractual reductions to regain investor confidence and stabilize its growth trajectory.

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