Wipro’s revenue grew at a rate of 3% sequentially, despite a weak quarter for the overall industry
Wipro shares have outperformed both Infosys and Tata Consultancy Services over the past year
The March quarter earnings of information technology (IT) services provider Wipro Ltd were largely in line with analysts’ estimates on most counts. In constant currency terms, its revenue grew 3% sequentially, which appears decent for what has traditionally been a weak quarter for the industry. But its much talked about recovery is yet to reflect in the year-on-year (y-o-y) growth rates. It finally managed to report an increase in revenues on a y-o-y basis, but growth was just 0.5% in constant currency.
Industry bellwether Tata Consultancy Services saw constant currency revenue growth of 5.9% in the March quarter, nearly at pre-covid growth rates. In the case of Infosys, revenues grew by nearly 10% y-o-y.
Note that Wipro shares have outperformed both Infosys and TCS shares in the past year, riding on the hope that its growth rates will soon catch up with that of its peers. While the wait for this continues, cheery investors are likely to take comfort from the company’s guidance for the June quarterG
“Investors are likely to overlook the weak year-on-year growth rates, and focus on the Q1FY22 revenue guidance and the robust deal wins," said an analyst at a domestic brokerage, seeking anonymity. Wipro shares were 5% higher in early trade on the New York Stock Exchange on Thursday.
Wipro guided for a revenue growth of 2-4% in dollar terms for Q1, excluding the benefit of recently announced acquisitions of Capco and Ampion.
The company’s management said for the full year, it is hopeful of double-digit revenue growth, though it should be noted that FY21 represents a low base, and Infosys and TCS are expected to grow in the mid-teens.
To be sure, the company’s strong deal closures come as a positive surprise. Wipro had closed 12 large deals, resulting in a total contract value of $1.4 billion in Q4FY21. This comes on the back of deal wins of around $1.2 billion in Q3FY21. The management said the demand environment is robust, and its overall pipeline is healthy. Further, Wipro is seeing strong traction in cloud and digital transformation services. Within segments, the management said that demand in the BFSI sector is strong across all service offerings.
“After the change in management, the concern of lagging behind peers on growth is being addressed to some extent," said the analyst mentioned above.
Another analyst, who is positive on the stock, said while Wipro’s stock price has seen a sharp run-up in the past one year, its valuations still lag peers. The Wipro stock trades at 21 times estimated FY22 earnings, compared to around 30 times in the case of TCS.
Meanwhile, Wipro’s Ebit margins saw a sequential decline of 70 basis points (bps) at 21%. One basis point is one-hundredth of a percentage point. Ebit is short for earnings before interest and tax. Compression in margins was lower than expected, and despite the wage hikes, due to the rising share of offshore projects and some cost rationalization measures.
However, going ahead, analysts are wary of the impact of salary hikes and bonuses on margins. The management said it would be giving promotions across bands, skill-based differentiated bonus and salary increases for senior colleagues in June 2021. Wipro’s attrition rate had increased to 12.1% in the March quarter compared to 11% in the December quarter. The management said that the increase in attrition points to robust demand in the sector. While it expects attrition to be around these levels, it is taking steps to retain talent.