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Shares of large-cap IT services provider HCL Technologies Ltd rose 2.5% intraday on the NSE on Friday reacting to its March quarter earnings. Revenue growth in constant currency terms rose 1.1% sequentially largely in-line with expectations. While its IT services business aided revenue growth, the products & platforms business was a drag. The company signed six large services and four product deals across verticals for a total new deal total contract value of $2.3 billion.

For FY23, the company has guided for dollar revenue growth of 12-14% in constant currency terms. This is likely to be aided by continued traction in its services business and a healthy deal pipeline. Ebit margin for FY23 is seen in the 18-20% range. Ebit is short for earnings before interest and tax.

While HCL’s FY23 margin guidance is pretty much on expected lines, its revenue guidance is ahead of estimates, said analysts at Kotak Institutional Equities. That said, the domestic brokerage house cautions that even though HCL’s IT services margins will keep on improving, volatility in the products segment will continue.

Analysts at Motilal Oswal Financial Services Ltd expect HCL to struggle on margins. They say elevated supply-side issues and a higher investment requirement will result in HCL’s Ebit margin staying at the lower end of its guidance, before recovering in FY24. It should be noted that on a last twelve-month trailing basis, HCL’s IT services attrition rose to 21.9% in Q4FY22 from 19.8% in the previous quarter.

Meanwhile, in the last one year, the HCL Technologies stock has risen by 15%. Peers Tata Consultancy Services, Infosys Ltd and Wipro Ltd have risen by 16% and 18%, respectively. On the valuations front, analysts at IIFL Securities Ltd note that while the stock is trading at 30% discount to peers, rerating would be contingent on a more consistent delivery on growth and margins.

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