Wipro Q3 results preview: Profit may rise at 2-3%; revenue growth to match guidance

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 Wipro may come out with a tepid set of December quarter results on Friday, post market hours. If one goes by analyst projections, the Bengaluru-based firm may lag peers TCS, Infosys and HCL Technologies on several fronts. The IT major is seen reporting a 2-3 per cent YoY rise in profit on a 15-16 per cent-plus growth in sales. Impact of wage hikes will be visible on margins, analysts said who largely expect Wipro to guide for a muted 0-2 per cent revenue growth (in constant currency terms) for the March quarter.

For the December quarter, the IT major had given 0.5-2 per cent QoQ CC growth guidance.

“Due to higher furlough impact this year, we bake in revenue growth at the lower end. The company is expected to report 1 per cent QoQ CC revenue growth in Q3 while dollar revenue growth is expected to be 0.7 per cent QoQ, after factoring in 30 bps cross currency headwinds,” ICICIdirect said in a note.

Motilal Oswal Securities said the growth in December quarter should remain soft, within the management’s guidance band, owing to heightened furloughs. Margins may remain in a narrow band given the two-month impact of wage hikes, it said.

“Consulting should remain soft. The degree of impact in Capco should be similar to the last quarter. The management’s guidance for 4QFY23 and deal wins will be the key monitorable,” it said.

Emkay Global expects Wipro to log a 2.3 per cent YoY rise in net profit at Rs 3,037.80 crore compared with Rs 2,969 crore in the same quarter last year. This brokerage sees net sales for the IT firm jumping 15.5 per cent to Rs 23,468 crore compared with Rs 20,313 crore in the year-ago quarter. Ebitda margin for the quarter is seen at 19.2 per cent. This is against 20.6 per cent in the year-ago quarter, down 137 basis points.

“We expect 0.6 per cent QoQ dollar revenue growth in the IT services segment after factoring in 40 bps cross-currency headwinds. Wipro had guided revenue growth to be 0.5-2 per cent QoQ in CC terms. We expect EBIT margin of IT services to expand by 40bps sequentially on account of operational efficiencies, employee pyramid rationalisation, and rupee depreciation, negating the full quarter impact of the salary hikes,” Emkay said.

Nuvama Institutional Equities, on the other hand, pegs Wipro’s profit for the quarter at Rs 3,052 crore, up 2.8 per cent YoY. It sees revenues for Wipro climbing 15.6 per cent YoY to Rs 23,483 crore. Nuvama estimates Wipro’s Ebit margin at 15.3 per cent.

ICICIdirect said that Wipro’s consulting business (led by Capco) is expected to continue to witness headwinds in December quarter and noted that  a few verticals like retail, hi-tech, manufacturing are likely facing headwinds during the quarter.

“Some revenues for the quarter could also be impacted by certain leadership changes during the quarter in our view. Rupee revenue is expected to grow 3.6 per cent QoQ to be aided by rupee depreciation. On EBIT margins, we expect IT services EBIT margins to expand moderately by 10 bps QoQ as there would some wage hike impact to hit in Q3 with tailwinds being moderation of attrition, pyramid optimisation and rupee depreciation,” it said.

Meanwhile, Kotak Institutional Equities expects investors to focus on the impact of recession on discretionary portfolio of the business, especially CAPCO. It said investors would want to know about the client behaviour in the current slowdown cycle versus the past and the performance of Wipro’s acquired entities, noting that most are in discretionary spending areas.

Besides, investors would also want to know about the annual client budgeting exercise, and the measures Wipro is taking to increase margins to aspired 17 per cent-plus level, Kotak Institutional Equities said.

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