Wipro Q3 Result Preview: 4 essential factors to watch out for in the earnings.

Q3 Result Preview: The Q3 earnings season for IT companies will kick start from Thursday as Infosys and Tata Consultancy Services declaring their financial performances for the quarter ending December’2023. While the forward earnings outlook for IT sector has improved slightly with easing of global slowdown concerns as interest rate cycle is likely to have peaked and there are expectations of rate cut soon. Nevertheless December' 2023 quarter performance is still likely to remain a mixed bag.

The December quarter being a holiday impacted quarter will mean furloughs keeping revenue growth of various companies like Wipro and others muted: weak macros, higher deal scrutiny and decision-making delay could lead to some impact on deal wins while the wage hike and muted revenue may weigh on margins.

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Wipro Q3FY24 expectations

For Wipro analysts at BNP Paribas expect services revenue to decline 2.5% sequentially in (2.0% sequentially in constant currency terms), in line with guidance and due to seasonal furloughs and the continued impact of a slowdown related to a cut in discretionary tech spending. They model contraction in IT services Ebit margin of 33 basis points sequentially to 15.7% on wage hikes and muted revenue, partially offset by operating efficiencies. Ebit stands for earnings before interest and tax and 100 basis points make a percent. 

Analysts at Axis Securities also expect Wipro to report revenue de-growth of 0.6% sequentially in rupee terms. The lower onsite expenses (lower by 87bps sequentially) however will support operating margins

Dhruv Mudaraddi, Research Analyst, Stoxbox said that the expected decline in Wipro’s Q3FY24 revenue to low single digits sequentially will be due to a lower services income owing to weakness in BFSI and Hi-tech verticals, along with challenges in the consulting business.

Margins in the services business are expected to decline slightly, with the impact of a one-month wage hike and furloughs being offset by operational efficiencies. Overall EBIT margins are also expected to dip marginally, attributed to soft sales performance and the impact of wage hikes effective from December 1, 2023.

Also Read- Infosys Q3 results preview: Expect weak earnings with drop in revenue; margins to contract

Key monitorable 

Wipro is expected to guide for quarterly constant currency revenue growth of -1% to 1% y-y for 4QFY24 as per BNP Paribas. 

They will look out for - Commentary on recent senior exits; impact of lower discretionary spending on the consulting business; performance of impacted verticals such as BFSI and tech; 4QFY24 guidance and FY25 outlook; large deal wins and pipeline; investments in GenAI (artificial Intelligence) partnerships and solutions; updates on core geographies and top-10 accounts and commentary on client budgets and any leadership changes.

Key monitorable as per Axis Securities also would be, Deal TCV (total contract Value) and pipeline, Pricing scenario, and Outlook on new deals