Wipro Q1 preview: PAT may jump 14-19% YoY; eyes on EBIT margin, guidance

Wipro Q1 preview: Nomura expects Q1 PAT to come in at Rs 2,732.1 crore, up 14.3 per cent YoY

Wipro Q1 preview: Information technology (IT) major Wipro's net profit could jump 14-19 per cent year-on-year (YoY) during the quarter ended June 2021 (Q1FY22) on 17-19 per cent growth in topline. The revenue growth would be led by organic growth in the IT services business and the acquisition of Capco, analysts said. A contraction in EBIT (earnings before interest and tax) margins sequentially is a given amid wage hike and dilution from Capco acquisition, which in turn would drive PAT (profit after tax) lower on a quarter-on-quarter (QoQ) basis, they said.

"Deal announcements have been soft and outlook from here in terms of pipeline and investments in setting up large deal team will be key. We expect Wipro to guide for revenue growth of 1-3 per cent QoQ on an organic basis and 4.5-6.5 per cent QoQ including incremental contribution from Capco and contribution from the Ampion acquisition," said Rishit Parikh, an analyst at Nomura.

Here's a look at what key brokerages are pencilling in from Wipro's Q1 show:

Nomura

The global brokerage Nomura expects Q1 PAT to come in at Rs 2,732.1 crore, up 14.3 per cent YoY, as against Rs 2,390.2 crore a year ago. Sequentially, the figure could decline 8.1 per cent from Rs 2,972.1 crore posted in the March 2021 quarter.

On the revenue front, it sees the overall figure (in rupee terms) to rise 17.6 per cent YoY and 8.9 per cent QoQ to Rs 17,543.8 crore. The company had posted Rs 14,913.1 crore revenue in the June 2020 quarter and Rs 16,245.4 crore in the preceding quarter.

"We expect 3.6 per cent QoQ constant currency (CC) and 3.8 per cent QoQ USD revenue growth on an organic basis in the IT services business in Q1 led by the ramp-up of large deals like Metro AG, Telefonica Germany etc. Overall, we expect a 9.3 per cent QoQ USD revenue growth (in-line with guidance of 8-10 per cent), including a $120 million contribution from the Capco acquisition," Parikh said.

Jefferies

This brokerage firm expects net profit growth of 15.7 per cent YoY to Rs 2,765.3 crore although sees a QoQ decline of 7 per cent. It pegs overall revenue (in rupee terms) at Rs 17,801.2 crore, up 19.4 per cent YoY and 9.6 per cent QoQ.

"We expect Wipro to report a 9.3 per cent QoQ CC revenue growth (versus 8-10 per cent QoQ CC guidance). This includes 680 bps contribution from Capco and Metro," the brokerage said.

EBIT margin could decline sharply by 200 bps to 18.5 per cent due to Capco integration and partial salary hikes from 20.5 per cent posted in the March 2021 quarter, the brokerage added. On yearly basis, the margin figure could expand 130 bps from 17.2 per cent posted in the year-ago period.

The focus will be on Q2FY22 guidance, deal momentum, commentary on Capco integration, hiring/attrition and execution of new strategy, it added.

HSBC

The brokerage eyes 16.9 per cent expansion in net profit on year to Rs 2,793.8 crore although it sees a sequential decline of 6 per cent.

The revenue figure could swell by 18.9 per cent YoY and 9.2 per cent QoQ to Rs 17,732.4 crore as per the brokerage. "Growth for Wipro assumed at the midpoint of the guidance range of 8-10 per cent and organic growth assumed at 3 per cent versus guidance of 2-4 per cent. We estimate IT services margins will have contracted 270 bps QoQ as integration costs from Capco (150 bps) weigh on profitability. Wage hikes for senior staff (effective June), and skill-based bonus payouts to retain employees would also put pressure on margins, partially offset by INR depreciation," the brokerage said in a note.

It pegs EBIT margin for Q1FY22 at 17.9 per cent against 17.2 per cent in Q1FY21 and 20.5 per cent in Q4FY21. Q2FY22 guidance will be a key focus area the brokerage said, adding that it expects strong guidance of  3-5 per cent sequential revenue growth.

ICICI Direct

Home grow brokerage ICICI Direct said Wipro is expected to report 10.1 per cent QoQ growth in USD revenues, mainly led by organic growth of 4 per cent QoQ and rest due to acquisition of Capco. In rupee terms, overall

revenues are expected to increase 9.9 per cent QoQ and 19.7 per cent to Rs 17,849.2 crore.

"Overall EBIT margins are expected to decline 180 bps QoQ to 19.2 per cent. Consequently, PAT is expected to decline 4 per cent QoQ," the brokerage said. It pegs Q1 PAT at Rs 2,852.5 crore. The figure could rise 19.3 per cent YoY.

Deal wins, second wage hike, vertical commentary, commentary of client’s IT Budget and revenue guidance will be areas of key interest for investors, according to the brokerage.