Share buyback to health care: 5 highlights of Wipro's June quarter results

Wipro Chairman Azim Premji has reassured shareholders of growth coming from the US

Wipro, India’s third-largest IT services firm, may report a drop in IT services revenue as analysts forecast degrowth, ranging from 80 basis points to more than 1 per cent, during the April-June quarter. As the company will announce the first quarter results after market hours today, brokerage firms say that Wipro’s revenue numbers are likely to be within its guidance band — two per cent to zero per cent in constant currency, given as they foresee the delay in decision making in the US impacting the healthcare segment.

Wipro’s earning before interest and taxes (EBIT) is likely to be impacted by the wage hike and rupee appreciation. At least three brokerage firms say EBIT margin may see a 60-100 basis points impact for the first quarter on a sequential basis.

The Indian IT industry, as a whole, is seeing its slowest growth in a decade mainly due to a slowdown in global markets in the US and Europe and digital disruption. Wipro’s peers, such as Infosys and TCS, have struggled to maintain their operating margin numbers, while the largest firm, TCS, has been hit by a Rs 650-crore impact on account of rupee appreciation.

On Wednesday, Wipro Chairman Azim Premji, however, reassured shareholders of growth coming from the largest market in the US despite a volatile economic environment worldwide.

Five things to watch out for today:

Q1 revenue growth and forecast

Analysts largely predict the IT services growth number to remain within Wipro's guidance as they are yet to see signs of revival in the global market. "Wipro had guided two to zero per cent QoQ constant currency growth for the first quarter. The weak guidance reflected the pressure in the healthcare vertical and sluggishness in communications and retail. We expect organic growth to be at the midpoint of the guided range at 1 per cent. A cross-currency tailwind of 110 basis points would lead to US dollar revenue growth of 0.1 per cent on a sequential basis," Motilal Oswal wrote in a note. The company’s Q2FY18 growth guidance would be important to note as it may see growth numbers on par with peers in the second half of this financial year.

Management commentary on healthcare vertical & HPS

It will be important to watch the management’s commentary on growth in the healthcare vertical in the US and opportunities coming through HealthPlan Services (HPS). One of the key things to watch out for is the "outlook for the healthcare vertical and HPS acquisition in view of developments in the US," wrote Kawaljeet Saluja and Jaykumar Doshi of Kotak Institutional Equities.

Another share buyback?

Given the poor performance of IT stocks in the recent past, two large companies decided to buy back shares using their cash reserves. Wipro also informed the stock exchanges that it would consider a share buyback at the board meeting today. "Wipro has a net cash of Rs 20,940 crore on the balance sheet as on 4QFY17. We see scope for the company announcing another round of tender buyback," said Madhu Babu, IT analyst at brokerage firm Prabhudas Lilladher.

Growth from major clients

For Wipro, growth from the top 10 accounts will be keenly watched as it will give a sign of organic growth going forward, said at least two analysts. The number of large deal wins will also be crucial for the software exporter. 

Integration of acquisitions

Last year, Wipro made one of the biggest acquisitions in cloud-based services expert Appirio. The management’s commentary on the progress of integration regarding Appirio, HPS, and other acquisitions is important. In fact, one of the analysts believes that the contribution from Appirio would positively impact Wipro's dollar growth this year. "We expect Wipro’s US dollar revenues to grow by four per cent in FY18... Two per cent organic growth and rest owing to the full impact of Appirio's acquisition," said Babu of Prabhudas Lilladher.