Shares of India’s HCL Technologies Ltd (HCLTECH) fell as much as 6.2% on Monday and were on track for their worst session since March 2020, as investors were disappointed by the company’s margin outlook after wage hikes dented December-quarter results.
The IT services provider reported on Friday a 13% drop in its third-quarter net profit and forecast 2022 revenue to grow in double digits.
HCL Tech’s overall margin remained flat but fell 190 basis points on a quarterly basis for the IT services segment. The company said margins were expected to recover in the 2022-23 fiscal year.
“Only the seasonal-leave impact of 65 basis points is what is expected to come back in the next quarter. The rest will probably take some time,” Prateek Aggarwal, chief financial officer, HCL Technologies, said in a conference call.
India’s software services sector has won more businesses during the pandemic, as companies globally look to boost their digital presence and demand grows for IT services ranging from cloud-computing, digital payment infrastructure to cybersecurity.
However, as demand grows, companies have been seeing intense competition to retain talents, leading to massive wage hikes.
“We have been concerned on supply-side pressures in the sector and these risks played out at HCL Tech earlier compared to peers, denting an otherwise strong growth performance,” Ambit Capital said in a note.
The Nifty IT index (CNXIT) was down 0.5%, with HCL being the major drag. HCL shares gained 41% in 2021, underperforming a 60% surge in the IT index.