HCLTech Q1 Results Review - Better Than Expected Numbers In A Seasonally Tepid Quarter: Nirmal Bang

Nirmal Bang Report

HCLTech Ltd.'s outperformance in Q1 FY25 was with USD revenue beat, margin resilience and at par net new deal wins. Revenues of $3.36 billion grew -1.6% and +5.6% on QoQ and YoY constant currency basis, respectively. This was a 0.4% beat on our estimate and in line with the street’s estimate.

The management had called out for a soft Q1 during FY24 exit commentary. However, the company ended up performing better due to 0.4% and 3.5% on QoQ and YoY CC growth in the HCL software segment with an annual recurring revenue of $1 billion plus.

Ebit margin at 17.1% was in line with street expectations but 20 bps lower than ours. The sequential drag in the margins were by services margins, down 51 bps QoQ.

This was due to 314 bps margin drop in engineering research and development services. As $ 20 million drop in overall revenue due to seasonal weakness with flat cost led the margin drop, we expect it to recover from Q2 onwards, with revenue pick up.

HCLTech has maintained the FY25 organic USD growth guidance at 3-5% YoY on CC basis and Ebit margin guidance at 18-19%. These do not include the impact of CTG acquisition, expected to be completed within the next six-nine months.

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