HCL declines post Q3 results as revenue meets estimates but with disappointing margins

On a constant currency basis, revenue increased by 15% YoY and 7.6% QoQ which is highest in the last 12-years.

Indian IT giant HCL has announced their Q3 results on Friday in the post-market hours. It had a good rally with the result anticipation, 7.5% up for the month. But with the disappointing results share declined 5.75% in a single day. 

Q3 earnings report:

On a consolidated basis, HCL revenue rose 15.7% to Rs 22,331 crore on a YoY and 8% up on QoQ. On a constant currency basis, revenue increased by 15% YoY and 7.6% QoQ which is highest in the last 12-years.

IT and Business Services is the major revenue driver which contributes around 70.6% of the total revenue, grew at healthy 4.7% QoQ cc (15.3% YoY cc), driven by an acceleration in cloud transformation and application modernization deals.

EBIT declined 3.7% to Rs 4,251 crore on YoY but had a growth of 8.3% on QoQ. The EBIT margin is 19% which got contracted 400bps on YoY.

HCL CFO has given reason for the dip in the margins. “It's three things - one is the seasonality, the leaves taken by people during this quarter because of the festive season. Second is the increments we gave out this quarter third is the cost of attrition and backfilling people at a higher cost, targeted retention costs, higher recruitment costs and others," he told reporters.

Net Profit declined 13.6% to Rs 3,442 crore on YoY but had a growth of 8.5% on QoQ. The Net profit margin is 15.4% which got contracted 500bps on YoY.

The reason for the steep fall in PAT, for Q3 FY21 was higher Rs 438 crore due to reversal of a prior years tax provision due to change in the method of calculating a tax deduction, basis evaluation of judicial rulings. Excluding this, PAT for Q3 FY22 is down 2.9% YoY in INR terms.

On the outlook for Q4, HCL said revenue is expected to grow in double digits in constant currency for FY’22 and EBIT margin is expected to be between 19% and 21% for FY’22. The attrition rate stood at 19.8% for the last 12-months better than Wipro (22.7%) and Infosys (25.5%) but not so impressive than TCS (15.8%).

At the end of the trading session on Monday, HCL closed at Rs 1,260, down by 5.75% for the day.