Wipro Q2 preview: CEO's strategy to revive growth, Q3 growth guidance eyed

Wipro, the Bengaluru-headquartered information technology (IT) services firm, is expected to announce its September quarter results for the fiscal year 2020-21 (Q2FY21) on Tuesday, October 13. The company's chief executive officer (CEO)Thierry Delaporte's strategy to revive growth, growth guidance for the third quarter (Q3FY21), buyback details, demand and pricing scenario, and outlook on healthcare and energy verticals,  according to analysts, are the key things to watch out for in the result announcement.

It must be noted that last week Wipro announced that the company’s board of directors, in its meeting scheduled on October 13, would consider equity share buyback proposal. 
 

Last week, IT bellwether Tata Consultancy Services (TCS) started the earnings season on a strong note as the company posted a stellar set of numbers on all fronts, beating the analysts' estimates. That apart, the company also announced a Rs 16,000 crore share buyback programme which led to heavy buying in IT counters. READ MORE

That said, let's have a look at what leading brokerages expect from Wipro's Q2 numbers.

Jefferies

The brokerage expects Wipro to report 1.6 per cent quarter-on-quarter (QoQ) growth in revenues in constant currency terms with 160 basis points (bps) cross-currency tailwinds and stable margins. Growth will be driven by the removal of supply-side constraints and deal ramp-ups. The focus will be on on any potential buyback announcement, Mr. Delaporte's strategy to revive growth and growth guidance.

HSBC

The global brokerage firm expects Wipro's IT services revenues to grow 2 per cent QoQ but decline 4.3 per cent YoY while in constant currency, revenue is seen rising 1.2 per cent QoQ. In rupee terms, Wipro is expected to clock 0.8 per cent QoQ growth in revenue at Rs 15,026.9 crore. On a year-on-year (YoY) basis, revenue will slip 0.7 per cent. EBIT (earnings before interest and tax) is expected to grow 4.3 per cent QoQ and 2.5 per cent YoY at Rs 2,609.4 crore while EBIT margin is projected at 17.8 per cent, up 60 bps QoQ and 50 bps YoY. "Operational gains and the absence of debt provisioning costs should have helped margins to expand by 60 bps QoQ," the brokerage notes. IT Services' EBIT margin is estimated at 19.7 per cent, up 60 bps QoQ and 160 bps YoY. Net profit is expected to come in at Rs 2,498.3 crore, up 4.5 per cent QoQ but a decline of 2.1 per cent YoY.

Key focus areas include commentary on verticals such as healthcare and retail and an update from the new management on the company’s growth strategy.

"Wipro received decent deal wins in 1Q, which means there is an upside risk to our revenue growth estimate for 2Qe. However, in our view, deal wins for 2Qe were weak and, hence, guidance for 3Q revenue growth will be critical to watch," HSBC said in the earnings preview note.

HDFC Securities

The brokerage expects Wipro to post 1 per cent QoQ growth in net sales (revenue) in US dollar terms at $1,941 million. However, on a year-on-year (YoY) basis, net sales is expected to fall 5.3 per cent. In rupee terms, revenue is seen at Rs 14,951 crore, up 0.3 per cent QoQ and down 1.2 per cent YoY. EBIT (earnings before interest and tax) is estimated to come in at Rs 2,699 crore, up 5.3 per cent QoQ and 3.5 per cent YoY. EBIT margin is expected to rise 87 bps QoQ and 80 bps YoY to 18.1 per cent. Adjusted profit after tax (PAT) or net profit is expected to grow 6.7 per cent QoQ to Rs 2,549 crore. On YoY basis, it will slip 0.1 per cent.

Nirmal Bang Securities

The brokerage expects Wipro to resume QoQ revenue growth guidance (1-3 per cent) beginning 3QFY21 given the improved visibility. The quarter will witness the addition of revenue from the acquisitions of 4C and IVIA Servios from the middle of the quarter, which should add about 30bps to QoQ growth number, it said. Wipro's IT services revenue is expected to rise 1.9 per cent QoQ and 0.5 per cent YoY to Rs 15,194.2 crore. In constant currency, growth is estimated to rise 1 per cent while in US dollar terms, it is projected to rise by 2.4 per cent to $1,968 million. EBIT is expected to come in at Rs 2,745 crore while EBIT margin is seen at 17.7 per cent against 18.1 per cent in Q1FY21 as well as in Q2FY20. Net profit is expected to grow 4.7 per cent QoQ but decline 2 per cent YoY to Rs 2,501.8 crore.

At the bourses, shares of Wipro have rallied 42.7 per cent during the September quarter as against 34.2 per cent rise in the S&P BSE Information Technology index. The benchmark S&P BSE Sensex, on the other hand, has risen 9 per cent during the period, ACE Equity data show.