Wipro Q2 earnings today: Five things to watch out for
- For the June quarter, Wipro had posted sequential growth of 2.8% in net profit to ₹2,390 crore while the closely-watched IT services revenue in dollar terms had declined 7.3% q-o-q and 5.7% y-o-y to $1.92 billion
BENGALURU: The market is eagerly awaiting second quarter earnings from IT major Wipro Ltd, especially as larger peer Tata Consultancy Services (TCS) has reported a reasonably strong set of results for the quarter ended September, beating analyst estimates on revenue growth.
Besides the performance, investors will watch out for changes in strategies as the July-September period was the first full quarter under chief executive officer (CEO) Thierry Delaporte who took over the Bengaluru-based IT major in July.
In the June quarter, Wipro had posted sequential growth of 2.8% in net profit to ₹2,390 crore while the closely-watched IT services revenue in dollar terms had declined 7.3% q-o-q and 5.7% y-o-y to $1.92 billion.
These are the five things to watch out for as the Bengaluru-based company announces its September quarter earnings later today:
Revenue, Guidance
Most brokerage firms expect Wipro to report a dollar revenue growth of 2.4-3.0% sequentially on higher cloud and digital adoption. Also, in the June quarter, the company had stayed away from providing quarterly guidance, citing business uncertainties arising out of the covid-19 pandemic. This quarter, analysts will see if Wipro resumes its practice of giving guidance as the business environment has reasonably stabilised from the peak of the pandemic.
CEO Strategy
As CEO Thierry Delaporte completes a full quarter in the company, investors will look out for strategy changes aimed at turning the company around that has been lagging peers over the last few years. “While we have not seen any management changes since announcing a new CEO, this would be a key area of focus. Changes in under-performing segments such as healthcare/energy would be taken positively by the market,” Nomura Research said in a note.
Delaporte is expected to reduce geographical footprint in markets where exposure is small and increase focus on more mature markets like Europe where he is based out of. Some revamp in organisational structure is also expected.
Margin Performance
Wipro is likely to see improved margins for the foreseeable future, aided by recovery in revenue growth and other cost tailwinds such as lower subcontracting expenses and travel and facilities costs, along with a shift towards higher offshore delivery. “It is worth noting that Wipro’s IT Services EBIT margins also improved by about 140 basis points sequentially despite revenue pressures. Wipro hopes to manage margins in a narrow range citing greater focus on growth revival,” JM Financial Institutional Securities said.
Management Commentary
According to a recent report by Fitch Ratings, the IT industry’s revenue will rise by a high single-digit percentage in 2021-22 due to increasing demand for digital transformation, and pandemic-related revenue decline is only short term. Therefore, investors will watch out for the management’s commentary on recovery timelines and growth drivers. “Segment commentaries particularly retail, travel and product engineering services” will be closely monitored, Edelweiss Securities said.
Attrition, Promotions
Earlier this month, Wipro said it will roll out promotions for “high performers” in bands up to B3, effective 1 December. Bands up to B3 form about 80% of the company’s workforce which translates to about 1,45,000 employees of its total headcount of over 1,80,000.
Analysts would watch out for commentary that would quantify the proposed salary hikes. The attrition numbers will also be closely monitored. Wipro’s voluntary attrition rate on a trailing twelve months basis for the first quarter improved to 13% from 14.7% in the previous quarter.
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First Published:13 Oct 2020, 01:40 PM IST
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