Will Wipro's Q4FY18 result surprise investors? Here's what brokerages say

Wipro
Wipro is likely to announce its fourth quarter results today. Among the key things to look out for, according to analysts, include revenue growth guidance, commentary on healthcare and communications verticals, execution of various new initiatives by new CEO and outlook on spending at key clients and geographies.

 

In the previous quarter, Wipro posted 11.85% quarter-on-quarter fall in consolidated net profit at Rs 19.30 billion.

 

On a year-to-date basis, the stock has rallied around 27% and has outperformed the Nifty IT index that gained around 19% during this period, ACE Equity data shows. By comparison, the Nifty50 index has gained around 0.5% YTD.

 

Here’s what leading brokerages expect from the company in the March 2018 quarter.

 

EDELWEISS RESEARCH

 

Client-specific issues to delay industry-level growth. We expect Wipro to post 2.1% and 1.1% growth (lower-end of guidance) in dollar and constant currency terms, respectively, due to client-specific issues in Utilities and Telecom. Operating margins are expected to rise 20 bps QoQ. We expect management to guide for 0%-2% growth in Q1FY19, which is a seasonally weak quarter for the company. Management commentary on Energy & Utility and Healthcare verticals and update on India & Middle East markets are keenly awaited.

 

HDFC SECURITIES

 

Higher drag in legacy revenue vs peers, client specific issues in Communication, high exposure to Energy and issues around HPS acquisition dragged growth for Wipro. Management expects growth to return to industry level from 1QFY19E led by Digital (25% of revenue), strong BFSI & return of growth in energy. Re‐rating will take place with revival in growth and margin expansion, currently elusive. Build Revenue/EPS CAGR of 6/8% over FY18‐20E.

 

MOTILAL OSWAL

 

In the previous quarter, Wipro had guided for 1% to 3% QoQ constant currency growth for Q4. The guidance embedded meaningful revenue impact from insolvency of a customer, whereby it also took $50 million one-time provision on costs in the previous quarter.

 

We expect growth to be at the lower end of the guided range at 1.5%. A cross-currency tailwind of 100bp would lead to dollar revenue growth of 2.5% QoQ. EBIT margin in IT services is likely to remain steady at 17.3% (+10bp QoQ) because of low organic growth at a time when operational efficiencies have played out over the last few quarters.

 

PAT estimate is at Rs 21.6 billion (+11.6% QoQ). However, adjusting for the one-time provisioning in the previous quarter, Q4 PAT would decline 4.1% QoQ on account of lower other income.

 

EMKAY

 

We expect 2% growth in IT services in constant currency terms (along with 96 bps QoQ cross currency tailwinds) in line with its midpoint to its 0 to 2% growth guidance range for the quarter. We expect gains in IT Services EBIT margins at 16.8% in absence of one-time cost.

 

Key things to watch out for: (1) Uptick if any in the guidance growth rates for Q1FY19 and demand in general on organic basis (2) Execution of various new initiatives by new CEO (3) outlook on spending at key clients and geographies.