HCL Tech: Slowdown in product biz remains a key risk

Bengaluru: IT services major HCL Technologies is likely to post strong revenue growth numbers in the near term as strong deal wins, sustained demand momentum in cloud & engineering segment will support this trend. However, there is a bumpy road ahead for the IT company's product & platform business, posing some risks to its growth path.

In the second quarter ended September, HCL Technologies posted a 3.5 per cent sequential growth in revenues, which was 10.5 per cent over the same period of last year in constant currency term. The Noida-headquartered company signed 14 large new deals during this period which pushed its net new booking to $2.3 billion, a growth of 38 per cent over last year. However, growth in product and platform business slowed down due to delay in closure of a few deals. On a combined basis, HCL Technologies should deliver dollar revenue growth of 13.1 per cent over FY21-23 period. We expect EBIT margin to stabilize at 20 per cent in FY23," said brokerage firm Motilal Oswal in a research note.

Experts also pointed out that the company is front-ending its employee addition to tide over the supply issues faced by the industry. "There is a big divergence between revenue growth and employee addition at HCLT over the last four quarters. We view the front ending of employee addition (around 35,000 over the last four quarters) as a smart move and a safeguard against the current supply crunch," saidMotilal Oswal in the note.