HCL Tech Q3 Review - Margins To Be Lower Than Pre–Covid Level: ICICI Securities

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ICICI Securities Report

HCL Technologies Ltd. has reported strong beat on revenues, growing 7.6% QoQ (constant currency). Though growth was broad based, performance was largely on the back of strong traction in products and platform segment which grew 24.5% QoQ (constant currency).

Services margin for Q3 FY22 declined 190 basis points QoQ, largely due to wage hikes and supply-side challenges, which was fully offset by positive operating leverage in product and platforms segment resulting in overall margins being flat sequentially.

HCL Tech's management called out a downside risk to their Ebit margin guidance of 19-21% for FY22 due to need for increased investments. This corroborates our argument that industry is unlikely to see any meaningful margin expansion in the new normal (versus pre-Covid-19).

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