Wipro Q3 preview: Analysts see 4% QoQ revenue growth, margins may dip

Brokerage firm Jefferies sees EBIT margins of the company declining by 70 basis points to 16.6 per cent from the previous quarter, on the back of salary hikes.

Analysts expect IT major Wipro to post strong earnings for the December quarter of FY22 (Q3FY22) on the back of strong deal wins, and stable momentum in clients. The company may report a 3-4 per cent quarterly rise in revenues for the quarter, according to analyst estimates. On a yearly basis, the revenue is expected to increase between 29 and 32 per cent.

The company is scheduled to post its numbers for the reported quarter on Wednesday, January 12. As per an average of seven brokerage estimates compiled by Business Standard, Wipro may post net profit of Rs 2,979 crore, and revenues of Rs 20,319 crore. 

On the other hand, the company’s EBIT (earnings before interest and tax) margins are likely to take a hit due to the full impact of salary hikes that were undertaken in September. In line with this, the bottom-line may remain muted sequentially, analysts believe.

In three months to December, shares of the company outperformed the markets, with a gain of 12.7 per cent, as against a 1.5 per cent fall in the NSE Nifty. The Nifty IT index, meanwhile, was up 10.4 per cent during this period.

Here's a look at projections from top brokerages:

Jefferies

The brokerage expects Wipro to report a revenue growth of 3.9 per cent in constant currency (CC) terms, as against the company’s 2-4 per cent guidance for the quarter. This estimate includes a 40 basis points (bps) inorganic contribution from the Ampion deal. 

Jefferies also sees EBIT margins of the company declining by 70 basis points to 16.6 per cent from the previous quarter, on the back of salary hikes.

JM Financial

The brokerage sees a 4.8 per cent sequential revenue growth in CC terms with a 50 basis points impact due to cross currency headwinds. In rupee and dollar terms, the revenue is seen at Rs 20,178.2 crore and $2,690 million, respectively.

EBIT margins, meanwhile, are expected to be nearly flat on a quarterly basis.

ICICI Securities

Analysts at ICICI Securities forecast a 4 per cent QoQ revenue growth in CC terms for the company’s IT services. Revenue growth in dollars, for the segment is pegged lower at 3.3 percent sequentially.

Overall EBIT margins are expected to decline 30 basis points QoQ due to continued weak performance from India State Run Enterprises business. Consequently, the brokerage expects PAT to be flattish from the previous quarter.

Prabhudas Lilladher

The brokerage expects a strong IT services revenue growth of 3.6 per cent in dollar terms on a quarterly basis, whereas in constant currency terms, it sees a 4.2 per cent rise in revenue. This is likely to be driven by strength in broad-based demand for discretionary spends and strong client mining efforts.

It also expects Wipro’s margins to decline by 50 basis points sequentially due to impact of wage hike, attrition and lower utilization. The brokerage expects the company to guide for 2-4 per cent revenue growth for the fourth quarter of FY22 in CC terms. 

Sharekhan

The brokerage expects revenue growth of 3.7 per cent QoQ in CC terms. In dollar terms, it estimates revenue to grow 3.1 per cent sequentially. The company’s growth would be led by higher spending on digital and cloud transformation initiatives and higher growth in existing accounts, it believes.

Key monitorables

Investors will watch out for Q4FY22 guidance, commentary on recent M&As such as Edgile acquisition and their potential benefits, deal wins and pipeline, further wage hikes,  margin outlook, and demand trends in key verticals such as BFSI, consumer, manufacturing, health, and the EU region.