Bengaluru: With Tata Consultancy Services (TCS) Ltd posting a weak second quarter earnings below analyst estimates and Infosys Ltd cheering investors by raising its FY20 guidance on the back of large deal wins, all eyes are now on the earnings of Wipro Ltd.

Mint highlights five things to watch for in Wipro’ second quarter (Q2) results that will be declared on 15 October, after market hours.

Guidance for Q3

Unlike Infosys which provides full-year guidance, Wipro gives a quarterly guidance. Analysts expect the company to guide for 0-2% revenue growth for the December 2019 quarter as growth is expected to be impacted by cautious spending of European banking and capital market clients, Kotak Institutional Equities said in a Q2 preview earnings note. Brokerage firm Emkay Global expects the growth outlook to be in the range of 0.5-2.5% in constant currency. Last quarter too, Wipro had given a revenue guidance of 0-2% for Q2FY20.

Revenue growth

Analysts expect Wipro to disappoint investors in its sequential revenue growth. Prabhudas Liladher expects the company to post a 1.3% q-o-q revenue growth, at the mid-point of 0-2% guidance for Q2FY20. Kotak Institutional Equities too said in a note that it expects a “constant currency revenue growth of 1.2% and cross-currency headwind of 70bps on a q-o-q basis."

Demand from BFSI, key verticals

Analysts expect Wipro to post weak growth in the financial services vertical but steady growth in the other sectors. Growth from the healthcare sector will be closely watched. Its larger competitor TCS posted slow growth in the second quarter mainly due to weakness in demand from the banking and financial services and retail industries. Cross town competitor Infosys also showed slow growth in the retail sector.

EBIT margins

Analysts expect Wipro’s EBIT margin to decline due to wage hikes. “Full quarter impact of wage revision will likely lead to decline in EBIT margin. We note that Wipro's wage revision cycle is effected from June 1 of every year," Kotak Institutional Equities said. However, “Reported EBIT margin will likely increase by 324 bps on yoy comparison largely on account of 360 bps impact from the settlement of lawsuit with National Grid in Sep 2018 quarter."

Management commentary on demand, digital

Analysts will keep a close watch on the management commentary on the outlook for the key growth drivers of FY2019. Growth from financial services will be monitored among others. They will also look for Wipro’s sustainability of margin in light of muted growth, and benefit from cut in corporate tax rate by the Indian government. Investors will also watch for growth in the digital business. During Q1, Wipro’s digital business grew 5.6% q-o-q and 34.6% annually. Digital contributed 37.4% of the company’s overall revenues as of last quarter.

At 13:10 hours, shares of Wipro were trading up 1.52% at 243 on the BSE Ltd.


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