Wipro slips 6%, hits 52-week low on weak Q3 revenue growth guidance

Wipro expect sequential revenue growth of 0.5 per cent to 2.0 per cent for October-December quarter

Shares of Wipro slipped 6 per cent, hitting a fresh 52-week low of Rs 383.25 on the BSE in Thursday's intra-day trade, after the company gave a revenue growth guidance of 0.2-2 per cent for October-December quarter (Q3FY23), much lower than Street's expectations, on the back of macro uncertainty and geopolitical issues. This is also less than the Q1 guidance of 3-5 per cent.

"We expect Revenue from our IT Services business to be in the range of $2,811 million to $2,853 million. This translates to a sequential growth of 0.5 per cent to 2.0 per cent," Wipro said on Q3 outlook. The management said  it said that it has started to see a slowdown in the Consulting business, although the same was partially compensated by cross-selling in Services.

The stock of the information technology (IT) company has fallen below its previous low of Rs 384.60, which it had touched on September 26, 2022. In the past six months, it has tanked 32 per cent, as compared to 1.9 per cent decline in the S&P BSE Sensex.

For Q2FY23, Wipro reported a 9.2 per cent year-on-year (YoY) decline in its net profit at Rs 2,659 crore, as against Rs 2,931 crore profit a year ago. Earnings were partly weighed down by rising staff expenses. The revenue for the quarter came in at Rs 22,540 crore, up 14.6 per cent on a YoY basis; sequentially, the figure was up 4.69 per cent. In dollar terms, revenue grew 4.1 per cent sequentially. CLICK HERE FOR FULL REPORT

ICICI Securities pointed out that the company is not seeing any slowdown in tech spends from clients while it is cautiously optimistic on the Europe market due to current geopolitical risks and energy constraints, which is baked in its Q3 guidance along with normal furloughs.

Strong growth in order book is expected to provide near-term revenue visibility. Key positive during the quarter was moderation of attrition for a second consecutive quarter, which is a divergence trend compared to TCS, the brokerage firm said.

"We believe this, along with better pricing and moderation of subcontractor costs (12.9 per cent of sales now vs. peak of 13.9 per cent), is expected to have positive rub-off on the margins ahead. However, net addition of only 605 employees in Q2 vs. strong numbers in earlier quarters could be a reflection of some slowdown in capco business and layoffs done by the company in Europe business," ICICI Securities added.

Meanwhile, Motilal Oswal Financial Services was disappointed by Wipro's weak Q3FY23 revenue growth guidance. "We remain concerned given the vulnerability of Consulting due to its early cycle nature. Moreover, the low employee addition in Q2FY23 also adds to near term growth concerns. We are factoring in FY22-24 $ revenue CAGR of 7.8 per cent – the weakest in our Tier I IT Services coverage," the brokerage firm said.

As Wipro posted a weak set of Q2 earnings, we expect its FY23 organic growth to be one of the lowest among Tier I IT Services play, with margin below the management’s medium-term guided range of 17-17.5 per cent. Moreover, its capital allocation has started suffering due to elevated investments in its Consulting capability, and the same should impact payout in FY23, it added.