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Wipro earnings may set the tone for performance of other IT services companies in the days ahead.
Wipro earnings may set the tone for performance of other IT services companies in the days ahead.

Wipro Q4 earnings: Five things to watch out for

  • Analysts believe that investors should be fine with companies desisting from providing an outlook given the uncertainties
  • Investors will monitor commentary on demand from BFSI vertical and other key sectors

BENGALURU: For the first time ever, Wipro Ltd on Wednesday will announce its quarterly earnings before its larger peers Tata Consultancy Services (TCS) Ltd and Infosys Ltd. The earnings come amid the pandemonium unleashed by the covid-19 outbreak on businesses across the world. The Bengaluru-based company’s earnings may set the tone for performance of other IT services companies in the days ahead.

Mint highlights five things to watch for in Wipro’s fourth quarter (Q4) results, due after market hours today.

Updates on new CEO

Since Abidali Z. Neemuchwala resigned as chief executive and managing director on 31 January and as such the industry has been waiting for an update on his successor. Wipro had informed stock exchanges that company has initiated a search to identify the next CEO and that Neemuchwala will continue to hold office until a successor is appointed. A Wipro spokesperson indicated that the company could be looking at an external candidate to fill the top post. Industry observers had expected Wipro to have made an announcement much earlier, and therefore updates on the new CEO will be closely watched.

Guidance for Q1 FY21

Unlike Infosys which provides full-year guidance, Wipro typically guides for quarter. However, given the uncertainties due to covid-19, analysts believe that investors should be fine with companies desisting from providing an outlook for now.

“We have already seen a significant number of global companies either withdraw or suspend or curtail their outlook in recent weeks," Emkay Research said in a note. Therefore, investors will closely watch the company’s commentary or guidance, if any, for Q1 FY21 to understand near-term challenges. According to Dolat Capital, for most IT companies, “the guidance will be a mix of optimism from the robust order bookings in FY20 and will also feature caution around the potential extension of the lockdown in many key markets." It expects Wipro to guide for de-growth of 1-3% for Q1 FY21.

Q4 revenue growth

Analysts expect early signs of covid-19 impact to reflect in March quarter earnings. Dolat Capital expects Wipro to post a constant currency revenue growth of 0% sequentially, towards the lower end of its revenue-guided band. During the third quarter, Wipro had guided a sequential revenue growth of 0-2% for the fourth quarter. “We expect Wipro would continue to underperform its peers in terms of revenue growth, given the implications in the economy from covid-19," brokerage firm Sharekhan said in a note.

Demand from BFSI, key verticals

Investors will closely monitor commentary on demand from banking, financial services & insurance (BFSI) vertical, and other key sectors. “The company has higher exposure to BFSI and energy verticals (which together account for about 43% of revenues) that could see moderation in IT spending in coming quarters," Sharekhan said.

ICICI Securities, however, believes that although the company has higher exposure to BFSI, energy & utility and Middle East, the current valuation factors in most negatives. “Hence, we continue to have a Buy rating on the stock."

Commentary on covid-19 impact

Analysts will keep a close watch on specific management commentary on the impact on business due to covid-19 outbreak. The pandemic has led to lockdowns in many countries which would obviously have adverse economic implications. In addition, the recent fall in crude prices could also have an adverse impact on the fiscal health of oil producing countries. As a result, “IT companies, which have considerable exposure to verticals such as oil, energy & utilities; banking & capital markets; manufacturing and travel & transport could see an adverse impact from the ongoing crisis," ICICI Securities said. Investors will therefore be keen to understand Wipro’s strategy to sail through the crisis. Management commentary on digital is also crucial as big data and AI continue to see demand despite a shrinking overall IT budget. Digital contributed nearly 40% to the company’s overall revenues as of last quarter.

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