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HCL Tech Q3 Review – Robust Revenue Beat, Prefers Growth Over Margins: Dolat Capital

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HCL Technologies Ltd. reported revenue growth of 7.6% in constant currency terms (our estimate: 4.0%) as products and platforms segment grew 24.5% QoQ while services business continued its traction with 5.3% QoQ growth.

Operating profit margin at 19.0% were below estimates (our estimate: 20.0%) largely on account of weak IT business margins at 16.6% due to multiple headwinds such as higher deal transition cost (40 basis points), wage hike (80 bps), seasonal leaves (65 bps) and supply side-related costs (85 bps). Retained operating guidance at 19%- 21% but with a lower end bias.

HCL Tech’s net new total contract value wins stood at $2.13 billion in Q3 implies potential for improved growth performance as trailing twelve months TCV is at $9.15 billion.

Headcount up 23% YoY suggest stronger investment on talent-side given growth visibility.

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