Wipro, India's third largest software exporter is expected to see subdued growth and see pressure on margins in the second quarter.
Wipro, which is expected to post results on Friday, has 0-1 per cent sequential growth in revenue; while pointing to factors like uncertainties in the BFSI vertical, continued weakness in energy vertical may arrest its revenue growth towards the lower end of the range.
The Bengaluru-based Wipro's performance will be tracked after its cross town rival Infosys cut its forecast the second time in three months due to business uncertainty and larger rival TCS pointing to pricing pressures and macro economic situation impacting performance in the coming months.
The July-September quarter, which is considered to be strong period for the sector, did not live up to the industry expectations as TCS called it "unusual Q2" and Infosys lowered its revenue even after posting a 3.9 per cent revenue growth in constant currency terms.
Since taking over in February as Wipro's chief executive officer, Abidali Z Neemuchwala has taken up initiatives including pushing automation for services, while setting an aspirational target to cross $15 billion topline in four years with operating margin of 23 per cent. Even though the company's Q1 performance was in line with the guidance, it clarified that there were strong headwinds in the energy and utility verticals.
In an earnings forecast on IT industry, two brokerage firms, Kotak Institutional Securities and Motilal Oswal, said that Wipro's operating margin in IT Services is expected to dip by 120 basis points largely due to wage hikes and increased investments.
The overall operating margin of the company may, however, see a decline of 40 basis points on the back improved profitability in the Products business, according to the Motilal Oswal forecast.
Revenue Guidance: Infosys lowered its revenue guidance twice this fiscal considering ramp-downs and pricing pressure in the industry. It will be interesting to see how Wipro gives a guidance for growth in the December quarter despite headwinds in the energy vertical and overall uncertainties in the industry. Lower financial numbers in Q2 may substantially impact the Q3 guidance. Wipro gives a quarterly guidance.
Stabilization of Energy Vertical: For the last few quarters, the energy vertical did perform well for the company. There is a volatility in the market too. After Q1 results, the company said that it would overcome the challenges in the vertical to achieve higher growth across all verticals. Improvement in that vertical during the July-September will be crucial.
Large deals and ramp-up: Infosys and TCS have shown better order book for Q2. Wipro's new orders and pipeline for the third quarter are something to watch out for. Commentary on ramp-ups are also going to be important.