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Informist, Friday, Oct. 11, 2024

 

By Darshan Nakhwa 

 

MUMBAI – Wipro Ltd. is expected to report muted financial performance for the September quarter due to weakness in the communications, manufacturing, and energy and utilities verticals, and muted discretionary spending, according to analysts. These factors will offset the growth in banking, financial services and insurance, and consultation businesses. Wipro is scheduled to announce its results for the September quarter on Thursday.

 

The information technology company's consolidated revenue is seen at INR 222.35 billion, up 1.2% on quarter but down 1.3% on year, according to an average of estimates of 16 brokerage firms. The projections for the top-line ranged from INR 219.48 billion to INR 224.60 billion. In Jul-Sept, the company's IT services constant currency revenue growth is expected to be flat on quarter, within the company's guided range of -1% to 1%. 

 

The Bengaluru-based company's net profit for Jul-Sep is seen at INR 29.79 billion, down nearly 1% sequentially but up 12.6% from a year ago. The estimates for profit after tax of Wipro were between INR 27.65 billion and INR 30.52 billion. 

 

According to Motilal Oswal Financial Services, the company is expected to report improvement in demand in the US in Jul-Sept, particularly in the banking and financial services sector, with significant activity in the consultation business. Further, healthcare is likely to gain momentum across the payer, provider, and life sciences sectors.

 

Brokerage ICICI Securities also expects the company to report some green shoots in the banking and financial services sector, and in the consulting business as indicated by Capco's performance in the Jan-Mar and Apr-Jun quarters and Accenture's commentary around consulting turning the corner. At 34%, Wipro has the highest exposure to the banking and financial services sector among tier-I companies.

 

For the September quarter, Wipro's large deal wins are likely to be around $1.2 billion but with a higher mix of renewals as compared to Apr-Jun, Kotak Institutional Equities said in a report. The company's large deal wins would be similar to $1.2 billion in Apr-Jun but lower than $1.3 billion in the same quarter of the previous financial year. In Jul-Sept, the information technology company saw traction in hi-tech deals. It bagged deals from John Lewis Partnership, Cyble and Dell Technologies. The company also got orders from John F Kennedy International Airport and global automotive supplier MAHLE.

 

Analysts are divided about how Wipro's earnings before interest and depreciation margin may fare during the quarter. Some believe wage hikes and decline in utilisation rates may impact the margin on a sequential basis. Others, including Kotak Institutional Equities, expect the EBIT margin to be stable due to depreciation of the rupee against the dollar, and cost control measures, which would offset the impact of wage revision. The estimates for the company's EBIT margin range from 15.2% to 16.5%, according to estimates from nine brokerages. During Apr-Jun, Wipro had reported an EBIT margin of 16.5%. 

 

Information technology companies have struggled with low demand for more than 18 months now, after seeing stellar demand in the aftermath of the COVID-19 pandemic. The demand for discretionary IT spending took a hit because of high interest rates, geopolitical tensions and low corporate sector growth around the world, especially in North America and Europe, which are key high-margin geographies for Indian software services exporters. 

 

On Thursday, India's largest information technology company, Tata Consultancy Services Ltd., reported lower-than-expected net profit for the September quarter, despite the company's revenue growth being the highest in seven quarters. The company earned a consolidated net profit of INR 119.1 billion on revenue of INR 642.6 billion. In a conference call with analysts, the company drew attention to the fact that global discretionary information technology spending has not improved, and that large transformation deals remain elusive. However, it expects lower interest rates in major economies to bode well for its business.  

Next week, investors will monitor comments from Wipro's management on deal wins, especially artificial intelligence deals, and the connection with revenue growth, according to brokerages. The focus would also be on demand trends in key verticals and geographies, and on signs of improvement in discretionary spending. They will also look forward to revenue growth guidance for Oct-Dec and the outlook for large deals.

Further, investors will monitor comments on the growth momentum in the consulting business and the strategy to achieve the EBIT margin target of 17%. They would also want to know the anticipated impact of furloughs and elections in the US on growth in Oct-Dec, and the hiring plan for the coming quarters. 

 

At 1125 IST, the company's shares traded at INR 525.90 on the National Stock Exchange, up 0.2%. Following are the Jul-Sept earnings estimates of Wipro based on reports from 16 brokerages:

 

Brokerage firm	Net sales (in mln rupees)	$ Revenue	Net profit  (in mln rupees)	EBITDA  (in mln rupees)	EBIT Margin (in %)
Antique Stock Broking Ltd	222,250	----	29,844	44,047	----
Axis Securities Ltd	224,600	----	30,280	----	16.20
Dolat Capital Market Pvt Ltd	223,571	2,668	30,010	----	----
Emkay Global Financial Services Ltd	223,353	----	30,272	----	----
HDFC Securities Ltd	222,680	2,637	30,440	----	16.40
ICICI Securities Ltd	221,290	----	27,654	----	15.40
IDBI Capital Market Services Ltd	221,686	2,647	30,149	----	16.36
Kotak Institutional Equities	223,523	----	30,522	44,679	----
KR Choksey Research	220,736	----	30,132	----	----
Motilal Oswal Financial Services Ltd	221,000	2,625	29,000	44,000	----
Nirmal Bang Equities Pvt Ltd	224,547	2,652	29,196	----	15.20
Nuvama Wealth Management Ltd	222,658	2,639	29,691	44,531	16.20
PhillipCapital (India) Pvt Ltd	221,620	2,639	30,032	----	16.40
Prabhudas Lilladher Pvt Ltd	222,100	2,644.7	29,600	----	15.80
Sharekhan Ltd	222,530	----	29,420	----	----
Systematix Shares and Stocks (India) Ltd	219,477	2,624	30,369	----	16.50
Average	222,351		29,788

 

End

US$1 = INR 84.06

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Namrata Rao

 

 

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