India's HCL falls on Q1 profit miss, margin woes

·2-min read
FILE PHOTO: People walk in front of the HCL Technologies Ltd office at Noida

(Reuters) -Shares of HCL Technologies Ltd dropped as much as 2.5% to hit a two-month low on Wednesday, a day after the Indian IT services company missed first-quarter profit estimates and disappointed on margins.

HCLT on Tuesday said first-quarter profit came in at 32.83 billion rupees ($412.20 million), falling short of the average estimates of 33.1 billion rupees, according to Refinitiv data.

The company reiterated revenue growth outlook for the year at 12% to 14% in constant currency and kept earnings before interest and tax (EBIT) margin view to be between 18% to 20%.

Multiple analysts said the margin growth and outlook was disappointing.

"We expect HCL to continue to struggle (on margin side) due to elevated supply-side issues and weak start to FY23, which will result in its EBIT margin missing the lower end of its guidance by 50 basis points," Motilal Oswal analysts said in a note.

HCL does not expect a drastic change to the margin environment in the coming quarter, company executives said in a media call on Tuesday.

June-quarter attrition rose to 23.8% from 11.8% a year ago and the company said it expected heightened attrition in quarter-ending September as well.

"While HCLT has maintained its FY23 (revenue) growth guidance of 12%-14%, slower net hiring and higher subcontracting is a concern," Jefferies said in a note.

Indian IT services companies' June quarter earnings started on a weaker note, with top IT services provider Tata Consultancy Services Ltd also missing its first-quarter profit estimates last week.

Margins for IT firms have been on a downtrend for the last few quarters due to rising employee-related expenses and issues in demand for resources.

Indian IT services companies have had a stellar run in the past couple of years, with companies expanding their digital offerings during the pandemic.

($1 = 79.6450 Indian rupees)

(Reporting by Nishit Navin; Editing by Rashmi Aich)

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