HCL Tech Q1 profit beats estimates!

• Profit beats estimates: HCL Tech, India's third-largest software services exporters, has reported a 32% on-year rise in net profit to ₹2,925 crore in Q1FY21, beating analyst estimates. Analysts had earlier estimated a profit of about ₹2,700 crore.
• Revenue declines across segments: The company’s revenue came in-line with estimates at ₹17,841 crore. During the quarter, the revenue has seen a decline in two out of the three segments on a QoQ basis. The table below shows HCL Tech’s revenue across the segments.  

• Healthy operating margins: Despite the challenges in the quarter, HCL Tech was able to protect its margins, on the back of favourable currency movements and large deal wins. Its EBIT margin contracted 40 basis points to 20.5%.
• Interim dividend: HCL Tech has declared an Interim Dividend of Rs 2 per share for FY20. The Record date has been fixed as July 25, 2020, while the dividend would be paid on August 7, 2020.
• New Chairman: Roshni Nadar Malhotra has been appointed as the chairperson with immediate effect. Her father and HCL founder Shiv Nadar will step down as chairman, but will continue as the Managing Director and Chief Strategy Officer of the company.

HCL Tech has delivered a strong performance in Q1FY21, despite the challenge imposed by the pandemic. Q1FY21 was expected to be weak, as it would absorb the highest impact of the lockdown announced on March 24th. The company has managed to renew several large deals during the quarter. 

'Going forward, HCL Tech expects a 1.5-2.5% increase in its revenue for the next three quarters in constant currency terms. Operating margins are likely to range between 19.5% and 20.5% for FY21.'. The firm is confident about its growth trajectory given a robust demand environment and a strong pipeline

The stock has gained about 68% from its 52-week low on March 19th. The shares are trading at a PE of 19 as compared to the sector PE of about 22.80 times. 

Our VGQM model has a BUY rating on the stock.