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Infosys and Wipro Q3 earnings: Five things to watch out for today

Infosys is expected to clock revenue of  ₹25,182.90 crore and a net profit  ₹5060.6 crore. (MINT_PRINT)
Infosys is expected to clock revenue of 25,182.90 crore and a net profit 5060.6 crore. (MINT_PRINT)

  • Given the gradual uptick in business and demand environment, investors will monitor if Infosys will raise its existing FY21 guidance. Wipro is expected to show greater confidence and management commentary on the outlook and recovery trajectory will be closely watched

Bengaluru: After a stellar Q3 performance by Tata Consultancy Services Ltd (TCS), all eyes are on peers Infosys Ltd and Wipro Ltd. The Bengaluru-based companies will announce their third quarter earnings after market hours on Wednesday.

Given the gradual uptick in business and demand environment, investors will monitor if Infosys will raise its existing FY21 guidance. Wipro which gives a quarterly guidance is also expected to show greater confidence and management commentary on the outlook and recovery trajectory will be closely watched.

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As per Bloomberg consensus estimates, Infosys is expected to clock revenue of 25,182.90 crore and a net profit 5060.6 crore. Wipro is expected to post revenue 15490.9 crore and a net profit 2551.8 crore.

Mint highlights five things to watch for in Infosys’ and Wipro’s third quarter (Q3) results.

Revenue guidance and growth

Analysts expect Infosys to revise its FY21 guidance upwards from 2-3% earlier to 3-5% in Q3FY21. Edelweiss Securities expects Infosys to report a dollar revenue growth of 5% q-o-q and 7.6% y-o-y in constant currency for the third quarter. The brokerage firm expects Wipro to report a dollar revenue growth of 3.1% q-o-q in constant currency at the upper end of its guidance of 1.5–3.5% and a decline of 1.6% on a y-o-y basis. Both Infosys and Wipro are expected to post modest margin expansion of about 50 basis points and 40 basis points q-o-q respectively, enabled by strong volume growth and better cost control and efficient execution.

Deal pipeline

Investors will closely watch the deal pipelines of Infosys and Wipro as both have won some large digital transformation deals in the recent past. In December, Infosys signed a large deal with German automotive major Daimler AG for an estimated value of about $3 billion. This win follows the $1.5-billion Vanguard deal that Infosys bagged in August. Wipro too signed a deal with German retailer Metro AG with an estimated deal value of up to $1 billion for 9 years. Deals pipeline and deal closure momentum will be a key parameter to monitor, Emkay Research said.

Digital growth

Digital and cloud has been the key drivers of growth for IT services companies since the pandemic began, so investors will track the digital growth momentum for both Infosys and Wipro. Infosys’ digital business grew 25.4% y-o-y and contributed 47.3% to the total revenues for the second quarter ended September. While Wipro has stopped calling out digital revenues separately, it has also been a key beneficiary of the digital transformation journey of its clients.

Attrition and wage hikes

Both Infosys and Wipro have announced promotions and wage hikes during the last quarter. Analysts will monitor if any further hikes will be announced for the next fiscal. While both companies have been able to reduce their attrition levels, analysts will watch out if steady rates are maintained. Infosys’ voluntary attrition rate declined to 7.8% during the September quarter from 11.7% in the previous quarter. Wipro’s attrition rate also declined to 11% during the September quarter from 13% in the previous quarter.

Management commentary on outlook

Investors will closely monitor the management’s commentary on demand outlook and market share gains. Infosys CEO Salil Parekh had earlier indicated that the company aspires to clock double-digit growth in FY22. “We need to see if there is any more colour likely to be given post a series of large deal wins by Infosys in recent months," Nirmal Bang Equities said. For Wipro, there is a lot of optimism on CEO Thierry Delaporte’s strategy to turn around the company. “The new CEO’s focus on simplification of organization, improving client mining, focus on fewer verticals and geographies to drive growth is expected to bode well," ICICI Securities said.

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