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Ebit margin drop, BFSI boost: Analysts' expectation from Wipro's Q4 nos

Amid expectations of a strong performance by the information technology (IT) services sector in the fourth quarter of the financial year 2020-2021 (Q4FY21), analysts expect Wipro to post steady growth, driven by a ramp-up in deals and continued momentum in Consumer, Technology and Healthcare verticals. However, margins are likely to contract sequentially largely due to wage inflation.

Most brokerages expect Wipro's net profit to rise between 23-30 per cent year-on-year (YoY) but the figure could contract on a quarter-on-quarter (QoQ) basis. Meanwhile, revenue growth is seen in the range of 1-2 per cent yearly. The company is slated to post its quarterly numbers on Thursday, April 15.

On the higher end of the band, analysts expect a forecast of 2-4.5 per cent QoQ CC (constant currency) growth for Q1FY22 while more modest predictions range between 1-3 per cent. Besides FY22 guidance, deal wins, pipeline commentary and demand and pricing scenario are among other key monitorables.

Wipro shares, so far for the year, have risen 8.5 per cent as against a gain of 3.7 per cent in the NSE Nifty index during the same duration. Meanwhile, in the March quarter, the stock has added 7.22 per cent in comparison with a 5 rise in the Nifty50 and 6.61 per cent in the Nifty IT index.

Here's a look at what top brokerages are projecting for Wipro's Q4 numbers:

Jefferies
Jefferies expects Wipro's Q4 net profit to increase by 25.3 per cent YoY to Rs 2,914.5 crore from Rs 2,326 crore it had reported in the corresponding quarter last fiscal. However, sequentially, the figure could slip by 1.8 per cent from Rs 2,966.7 crore posted in Q3FY21.

The brokerage expects revenue (in rupee terms) to rise 2.1 per cent YoY to Rs 16,040.3 crore in the March quarter of FY21 from Rs 15,711 crore posted in the same period last year. It sees a growth of 2.4 per cent QoQ from Rs 15,670 crore posted in the December 2020 quarter.

In dollar terms, the brokerage expects IT services revenue to rise 3.4 per cent YoY and 3.5 per cent QoQ to $2,144 million in Q4FY21 from $2,074 crore in Q4FY20 and $2,071 million in Q3FY21.

"We expect Wipro to report 2.5 per cent QoQ revenue growth in CC terms (midpoint of guidance), 100bps currency tailwinds. Growth should be driven by deal ramp-ups and a full quarter of Eximius and Encore consolidation," Jefferies said in an earnings preview note.

It also eyes an 80bps QoQ decline in Ebit (earnings before interest and tax) margins to 20.4 per cent due to wage hikes and 100 per cent variable payout in Q4. Wipro had posted Ebit margin of 21.2 per cent in the December quarter. On a yearly basis, however, the margins are likely to expand by 448 bps from 15.9 per cent.

Phillip Capital
The brokerage expects net profit to rise by 24.9 per cent YoY to Rs 2,904.5 crore but fall 2.1 per cent QoQ.

They expect IT services revenue growth of 3.7 per cent QOQ at $2,147 million with a positive cross-currency impact of 50bps (CC growth +3.2 per cent). On a YoY basis, the IT services revenue (in dollar terms) is expected to grow by 3.5 per cent. In rupee terms, it sees March quarter revenue at Rs 16,039.6 crore, up 2.1 per cent YoY and 2.4 per cent QoQ.

"We expect Wipro to guide for 1-3 per cent QoQ CC growth for Q1," the brokerage said.

Margins are expected to decline by 140 bps sequentially to 20.2 per cent on the back of the two-month impact of Wage hikes and senior management hiring. The figure could rise by 340 bps YoY.

Prabhudas Lilladher
The brokerage expects net profit growth of 23.3 per cent YoY to Rs 2,868.4 crore but a dip in the figure on a sequential basis by 3.3 per cent. The revenue for the quarter under review is expected to rise by 1.2 per cent YoY and 1.5 per cent QoQ to Rs 15,905.4 crore, the brokerage said.

"We expect strong revenue growth of 3 per cent CC, led by the ramp-up of large deals in the earlier quarter. Q4 is a seasonally strong quarter for Wipro. We expect strong growth from Cloud and infra business. Vertical wise we expect a broad-based recovery with retail and BFSI (banking financial services and insurance) outperforming," said analysts at Prabhudas Lilladher. They eye IT revenue growth of 3.3 per cent YoY to $2,142 million.

Led by wage revisions and hiring at the senior management level, the brokerage expects Wipro to post a 160 bps decline in Ebit margins at 20 per cent. On a YoY basis, margins could rise by 346 bps, it said.

Execution of past large deal, demand commentaries of key verticals, commentary of large deals, pricing and budgets of CY21 and any other big M&A (merger and acquisition) bets are among key monitorables, analysts said.

Axis Securities
Analysts at Axis Securities eye a 30.1 per cent YoY and 3.3 per cent QoQ rise in net profit to Rs 3,065 crore, one of the most bullish predictions among brokerages.

Meanwhile, they see revenue (in rupee terms) growing to Rs 15,939 crore, up 1.5 per cent YoY and 1.7 per cent QoQ, aided by strong deal wins. It also expects the margin to improve due to favourable currency fluctuations and strong executions.

The brokerage eyes Ebitda (earnings before interest, tax, depreciation and amortisation) margin expansion of 47 bps sequentially to 26.7 per cent from 26.3 per cent. On a YoY basis, margins are likely to rise by 714 bps from 19.6 bps posted in the March 2020 quarter, it said.


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