Wipro Q2FY23 Preview: Analysts see up to 15% YoY rise in revenue

Wipro will report its September-quarter results on Wednesday, October 12, with analysts expecting everything, from deal wins to delaying the onboarding of freshers, and moonlighting, and more to be in focus. 

Investors will look forward to whether the company is able to meet its 3-5% revenue growth guidance that it issued in its June quarter results. 

Analysts see up to 15% year-over-year (YoY) rise in revenue on average with margins likely to remain under pressure. Sharekhan expects Wipro's net profit to drop 3.7% YoY to ₹2,822 crore. It pegs revenue at ₹22,888 crore, up 15.8% on a yearly basis. Motilal Oswal also expects revenue at ₹22,500 crore, up 4.7% QoQ and 14.6% YoY, and profit at ₹3,000 crore, up 15.5% QoQ and flat YoY. "Margin should see some improvement despite continued supply pressures," it added.

A CNBC-TV18 poll expects Wipro's topline to grow 2.4% in US Dollar terms compared to the June quarter. Rupee revenue is likely to grow in mid-single digits while Earnings before interest and taxes (EBIT) and margins are likely to remain flat quarter-on-quarter. 

Consolidated profit after tax (PAT) for the IT firm may jump 10% on a sequential basis but decline 4% on-year to ₹2,815 crore in the second quarter of FY23 (July-September). Consolidated revenue is expected to increase 15.4% on-year to ₹22,693 crore, according to an average of estimates of brokerages. 

The company had recorded a consolidated net profit of ₹2,931 crore during the corresponding period of last financial year when its consolidated revenues stood at ₹19,668 crore. Wipro had registered a PAT of ₹2,560 crore during April to June 2022 period on revenue of ₹21,528 crore. 

While the company had guided for 3-5% constant currency (CC) growth in Q2FY23, analysts expect constant currency growth of 4% on a quarterly basis. 

The company’s growth will be aided by a 100-bps inorganic contribution from Rizing and Convergence acquisitions. As financial advisory firm Jefferies said Wipro is likely to deliver a 4% QoQ constant currency (CC) revenue growth. “Its margins may expand by 20 bps QoQ with the impact of wage hikes that came into effect from September 1, supply-side pressure and higher travel costs to be offset by pyramiding, operating leverage and some pricing benefit”. 

“Revenue growth is assumed to be at the mid-point of Q1 (3-5%) guidance, which translates into a 5.5 CC quarterly growth,” said Japanese financial services group Nomura. The management had indicated that margins bottomed out in Q1, and while some margin gains are expected to have been reinvested in talent retention in Q2, firm-wide wage hikes remain due in the December quarter, giving margins room to expand this quarter, it said. 

Kotak Institutional Equities is also bullish on its quarterly guidance, as it predicted the company’s CC revenue growth of 4% to be led by a 130-bps contribution from the Rizing acquisition. “We expect a modest 30 bps increase in EBIT led by aggressive compensation control and increase in utilisation rates,” it said. 

Meanwhile, PhilipCapital also told Mint that the IT services firm’s CC revenues to grow 4% in line with its guided range of 3-5% on large deal ramp-ups. It also said that margins are likely to increase modestly by 20 bps QoQ. 

Apart from revenue guidance for Q3, investors will be closely monitoring the management’s commentary on recent mergers and acquisitions, deal wins and clients’ IT budget. 

Kotak Institutional Equities said the main focus is on impact of recession, especially in Europe which accounts for one-third of Wipro’s total revenue. 

Performance of management consulting firm Capco is also being monitored since 30 large global financial clients account for 7%of Capco’s revenue. Wipro had acquired the company in March 2021 for $1.45 billion, making it one of the largest end-to-end global consulting, technology and transformation service providers to the banking and financial service industry. 

Investors are also watching out for comments on attrition and ‘moonlighting’. Wipro Chairman Rishad Premji, who termed the practice of moonlighting as ‘cheating’, in August, followed by the IT major’s firing 300 people working directly for one of their competitors last month. 

Other factors to watch out include variable compensation paid out, noting that variable payouts were cut entirely in mid-to-senior levels, potential share buyback announcement as it plans on returning 45-50% of its net income back to shareholders as buybacks and pipeline of large deals, something that generally goes up in a slowdown.