Wipro Q2: Wage hike, divestment of hosted data services to impact nos

IT services firm Wipro is slated to release its second-quarter results for FY19 (Q2FY19) on Wednesday. Over the last few days, Wipro's peers Tata Consultancy Services, Infosys and HCL Tech have reported good numbers for July-September period on the back of large deal wins, rupee depreciation and strong demand environment. However, the Abidali Neemuchwala-led company may report muted numbers owing to wage hikes, cross-currency headwind and divestment of hosted data services. 

Wipro posted a 2.1 per cent year-on-year (YoY) rise in its net profit at Rs 21.2 billion for the quarter ended 30 June. Gross revenue was Rs 139.8 billion, up 1.5 per cent sequentially and 2.6 per cent compared to the year-ago period. IT services segment revenue stood at Rs 137 billion, up 2.2 per cent quarter on quarter-on-quarter (QoQ) and 5.2 per cent (YoY).

On a year-to-date (YTD) basis, the company's stock has fallen nearly 2 per cent against S&P BSE Sensex's over half a per cent rise. 

For September quarter of FY19, the company is expected to post 2.2 per cent constant currency (CC) revenue growth (higher-end of guidance) aided by summation of Alight deal. It had set revenue growth guidance of 0.3 per cent to 2.3 per cent QoQ for the second period. However, US dollar revenue growth will remain flat QoQ on account of cc headwinds (110 bps) and adjustment of the sale of the data centre business in base revenues, says Edelweiss Securities. 

Motilal Oswal Securities sees EBIT margin in IT Services to expand by 170 bps to 17.3 per cent led by rupee depreciation (100 bps), the absence of one-time restructuring expenses (40 bps) and improvement in operational efficiencies (30 bps). ICICI Securities, however, says EBIT margins may expand 50 bps QoQ owing to operational efficiency and rupee benefit partly offset by two-month wage hike impact.

Cross-currency headwind is seen at 150 bps which will lead to flattish growth in US dollar terms on a like to like basis in Q2FY19, says Emkay Global Securities. "One-month revenue from Alight deal should add another $12.5 million to revenues," the brokerage added.

The firm is expected to report double-digit growth in PAT (profit after tax). "Our PAT estimate is Rs 22.2 billion (+21 per cent QoQ). This would be led by the sharp improvement in profitability in both Services and Products. The stock trades at 13.7x FY19E and 12.4x FY20E earnings, says Motilal Oswal Securities. 

Key monitorables to watch out for in today's results include Demand outlook across healthcare, communication & utilities vertical, margin enhancement levers and outlook on profitability once the revenue decline stabilises.