Wipro Q2 results: Will the IT giant improve profitability YoY? Key highlights
- Experts believe Wipro's margins are likely to improve despite the wage hike in Q2. The company's IT services revenue growth in constant currency is expected to be between 3-4% this Q2.
Ahead of its Q2 earnings, IT-major Wipro shares were under pressure on Tuesday. The company will present its quarterly and half-yearly earnings for the period ending September 30, 2022, tomorrow. Experts believe Wipro's margins are likely to improve despite the wage hike in Q2. The company's IT services revenue growth in constant currency is expected to be between 3-4% this Q2. Wipro is seen to record strong growth in order book. Although sequentially, Wipro's profitability is expected to rise, however, year-on-year, experts believe it will decline. Deals and guidance outlook are among key monitorable.
On BSE, Wipro shares closed at ₹404.30 apiece down by 1.69%. The company's market cap is around ₹2,21,780.45 crore.
In the first quarter of FY23 (April to June), Wipro garnered a consolidated net profit of ₹2,563.6 crore -- lower than ₹3,242.6 crore in the same period last year. Also, sequentially, the company's PAT declined by 16.96%. Consolidated revenue, however, was healthy at ₹21,528.6 crore in Q1FY23 up by 17.9% yoy and 3.2% qoq. In dollar terms, IT Services Segment revenue stood at $2,735.5 million, an increase of 13.3% yoy.
As of June 30, 2022, Wipro's employee headcount is 258,574 while its attrition rate is at 23.3.
What should you expect from Wipro in Q2FY23?
Sameer Pardikar and Sujay Chavan Research Analysts at ICICI Direct in their Q2 preview report for Wipro said, "We expect the company to report 4% QoQ CC growth in revenues in IT services (including full quarter revenue from Rizing, we are factoring 150bps contribution ). We expect dollar revenue growth of 2.5% QoQ, factoring in 150 bps cross-currency headwinds. The growth is expected to be broad-based across sectors."
Further, the analysts added, "The company is expected to report 5% QoQ rupee growth aided by rupee depreciation. EBIT margins in global IT services are expected to improve by 30 bps QoQ despite wage hike in Q2 on account of some tailwinds such as pricing, moderation of subcontractor costs, utilisation improvement, pyramid rationalisation, and some const control on variable payout. Overall EBIT margins are expected to improve by ~40 bps QoQ. Consequently, PAT is expected to improve by 9.5% QoQ."
Among key things to watch in this Q2 are -- commentary on recent M&A, Deal wins, vertical commentary, commentary on the client’s IT Budget, and revenue guidance for Q3.
ICICI Direct analysts expect Wipro to report a revenue of ₹22,722.2 crore up by 15% yoy and 5% qoq. While EBITDA is expected at ₹4,202.6 crore down by 1.5% but up by 5.9%. PAT is factored at ₹2,803.7 crore down by 4.5% yoy and 9.3% qoq.
Meanwhile, Anjali Verma Research Analysts and Ravi Kumar Research Associate at Phillip Capital expect Wipro's IT services CC revenue growth ar +4.0% (+2.5% qoq in USD), in line with its guided range of 3-5% on large deal ramp-ups. Also, it will include two months impact of Rizing (c1.2%).
Further, the Phillip Capital experts note said, "Margins are expected to increase modestly (+20bps) with headwinds like salary hikes (1-month impact), promotions offset by growth, utilization improvement, and efficiencies. We expect Wipro to guide for +1% to +3% qoq CC growth for Q3."
Also, stock brokerage Sharekhan in its Q2 preview report said, "Wipro is expected to post 4% q-o-q CC revenue growth, which includes inorganic growth of 1.3% from the Rizing acquisition. We see 160 bps cross currency impact for Wipro," adding, "EBIT margins are set to improve by 29bps q-o-q led by higher utilization and cost control."
Moreover, Motilal Oswal analysts Mukul Garg and Raj Prakash Bhanushali in their report stated that Wipro's growth n 2QFY23E should remain within the management’s guidance band provided in 1QFY23. Margin should see some improvement despite continued supply pressures. Also, expect the company's Q3 demand commentary to stay positive. The management’s guidance for 3QFY23 and deal wins will be a key monitorable.
On the valuation, Motilal Oswal has set a neutral target on Wipro with a target price of ₹385. While ICICI Direct and Sharekhan have given a 'Hold' recommendation with a target price of ₹460 apiece each.
In September quarter of FY22, Wipro had posted a net profit of ₹2,931 crore and a revenue of ₹19,667 crore.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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First Published:11 Oct 2022, 06:43 PM IST
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