Q3 result preview: Here's what to expect from Wipro's December quarter nos

Commentary on recovery in top clients, outlook on spending in manufacturing and BFSI segments and guidance for the March quarter will some of the key things to watch

When information technology (IT) company Wipro releases its December-quarter results on Tuesday, some of the key things to watch will be its commentary on recovery in top clients, outlook on spending in slow-growing manufacturing and banking, financial services and insurance (BFSI) segments, and guidance for the March quarter (Q4 FY20).

The company is expected to report revenue growth of around 1.6 per cent on a sequential basis in constant currency (CC) terms, helped by currency tailwind and the acquisition of ITI. In Q3 of FY20, Wipro had guided for 0.8-2.8 per cent revenue growth on a quarter-on-quarter (QoQ) basis in CC terms.

Analysts at ICICI Securities expect the company’s US dollar revenues to increase 1.8 per cent QoQ, with the integration of the ITI acquisition contributing 30 basis points and the ICICI Bank deal contributing nearly 50 bps. Cross-currency is expected to be a tailwind of nearly 30 bps QoQ. In rupee terms, Wipro’s net sales (revenue) during the December quarter are seen at Rs 15,327.6 crore, up 1.3 per cent QoQ and 1.8 per cent on a year-on-year (YoY) basis. Earnings before interest, tax, depreciation and amortisation (Ebitda) is expected to fall 2 per cent QoQ and 5.6 per cent YoY to Rs 3,029.4 crore, while Ebit is seen at Rs 2,640.9 crore, down 1 per cent QoQ and 7.9 per cent YoY.

The brokerage expects Wipro’s reported net income to be Rs 2,338.2 crore, down 8.4 per cent QoQ and 6.9 per cent YoY. "We expect the company to guide revenue growth in Q4 FY20 in the range of 0-2 per cent QoQ in CC terms, given a higher number of working days in the quarter and a healthy pipeline, though exact magnitude of growth will be a function of when/if deal closures happen," it added.

Edelweiss Securities expects Wipro’s revenue to grow 1.6 per cent in CC terms, and it estimates 20-bp cross-currency tailwinds to arrive at a US dollar growth estimate of 1.8 per cent QoQ. The absence of wage hikes and investments in bench strength (nearly 100 bps) would be partially offset by an increase in Selling, General and Administrative Expenses (SG&A) of nearly 60 bps. A weak rupee (20 bps) should help Wipro expand its operating margins by 60 bps QoQ, the brokerage added. It estimates global IT revenues at $2,086, up 1.8 per cent QoQ and 1.9 per cent YoY. Ebidta margin is seen at 20.9 per cent, against 20.4 per cent in the previous quarter. Net profit or profit after tax (PAT) is seen at Rs 2,561.9 crore, down 0.3 per cent QoQ, but 2.1 per cent higher on a YoY basis.

During the past three-month period (October-December), shares of Wipro have gained around 2.5 per cent, against a rise of around 6 per cent in the benchmark Nifty50 index. The Nifty IT index gained nearly 1 per cent during the period.

"We expect IT services Ebit margins to improve nearly 20 bps qoq to 18.3 per cent on growth leverage, utilisation improvement and rupee depreciation, offset in part by the normalisation of SG&A expenses. The completion of buyback in the September 2019 quarter (August-end) and the normalisation of effective tax rate (ETR) should lead to lower other income, and thereby leading to a decline of nearly 3 per cent qoq in profits. EPS growth, however, should be helped by buyback," said Emkay Global Financial Services in an earnings preview note.