Wipro follows up Q1 margin uptick with decent revenue growth in Q22 min read . Updated: 13 Oct 2020, 08:53 PM IST
- Growth in Wipro has started coming from all biz verticals compared to before, when it was uneven
- The management is now more optimistic than usual on the back of improvement in rate of deal wins
Wipro Ltd’s fiscal second quarter numbers suggest the company may be returning to the growth path. The IT major’s 2% sequential revenue growth in constant currency terms was decent and just about what the Street has been looking for.
Among the large IT firms, the Wipro stock has been one of the best performers, with gains of over 50% compared to pre-covid highs.
Its key banking and financial services vertical did well with a 3.7% sequential growth in constant currency. The company saw growth step up in its communications and consumer business units as well. This shows that growth has been coming from nearly all sections compared to the earlier quarters when growth tended to be lumpy in different verticals. What’s more, the management is sounding more optimistic than usual on the back of an improvement in the rate of deal wins. Interestingly, the firm has once again resumed giving quarterly guidance after it suspended guidance due to covid-19 disruption.
For the third quarter, Wipro’s guidance indicates a sequential growth of about 1.5-3%, which is a good climb-up compared to the tepid growth guidance the company has given in recent years. The management said that it sees a good mix of large and medium-sized deals across service lines as the overall demand environment is looking better.
But note that at the mid-point of the Q3 guidance range, year-on-year (y-o-y) growth will remain negative at about -2.5%. Revenues were down 3.4% in Q2 y-o-y. And while margins improved marginally, they were a tad lower than some analysts’ expectations. Still, the firm reported an Ebit margin of 19.2%, which is a sharp uptick over the year-ago quarter’s 18.1%.
Analysts say that while the second half is normally better, this year should see the pace improve significantly. “This year, the first half was different and impacted. Most contracts that were not able to ramp up in the first half could begin to ramp up in the second half," said Amit Chandra, an analyst, HDFC Securities.
Wipro also announced a buyback, but the Street could be a tad disappointed as the buyback amount is lower than expectations. Wipro announced a ₹9,500 crore buyback at ₹400 per share, while the Street was expecting the buyback of at least about ₹12,000 crore.
Nevertheless, as pointed out earlier, the stock has been on a tear lately, and some of the momentum should continue, given the better-than-expected revenue in Q2 and the healthy Q3 guidance.
The key for investors is while growth is expected to ramp up, whether the firm will be able to match the industry’s growth rates in the coming quarters. While the guidance is good, Wipro still has some distance to go in catching up with the industry in terms of y-o-y growth rates.