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Wipro Q1FY19 preview: Profit outlook, commentary on healthcare vertical key

After TCS surprised the Street by reporting better-than-expected numbers in the first quarter of the financial year 2018-19 (Q1FY19), and Infosys’ in-line performance for the same quarter, investors now await Wipro to report its numbers. The IT major is scheduled to announce its results for the June quarter (Q4FY19) post market hours today.

In the previous quarter, Wipro reported a decline in its net profit by 20.5 per cent year-on-year (y-o-y), missing analyst estimates to Rs 18 billion, as it made provisions for an insolvent client and an impairment loss in one of its acquisitions.

Analysts see the company continuing to grapple with specific issues like the bankruptcy of two of its clients for at least a couple more quarters. Revenue growth guidance for the second quarter (Q2FY19), commentary on the verticals of healthcare and communications and outlook on profitability once the revenue decline stabilises are the key things to watch out for in June-quarter results.

On a year-to-date (YTD) basis, the stock has slipped 9.5 per cent and has underperformed the Nifty IT index that gained over 24.43 per cent during this period. In comparison, the Nifty50 index is up 4 per cent YTD, ACE Equity data showed.

Here is a quick compilation of what leading brokerages expect from Q1FY19 of Wipro:

MOTILAL OSWAL

Wipro’s revenue growth guidance for Q1FY19 (-2 to 0 per cent q-o-q CC) was impacted by a decline in revenue from HealthPlan Services (HPS) and by the insolvency of two its customers. Cross-currency headwinds of 130 bps are likely to result in 2.3 per cent q-o-q decline in dollar revenue.

We expect EBIT margin in IT services to decline by 30 bps to 15.7 per cent despite rupee depreciation, because of revenue pressures and part- impact of wage hikes. Our profit after tax (PAT) estimate is Rs 20.6 billion (+9.3 per cent q-o-q). Adjusted for the exclusion of one-off expenses in 4QFY18, PAT growth is likely to be 1.7 per cent q-o-q.

RELIANCE SECURITIES

We expect dollar revenue in the combined IT services business to decline by 1.6 per cent q-o-q (down 0.6 per cent q-o-q in CC terms). EBIT margin is expected to expand on favourable currency movement. Revenue for the quarter is expected to come in at Rs 141.1 billion, up 2.5 per cent (q-o-q) and 3.6 per cent (y-o-y). Key factors to watch out for: Revenue growth guidance for 2QFY19 and signs of growth up-tick.

HDFC SECURITIES

Expect dollar revenue de-growth of 2.5 per cent q-o-q, constant currency (CC) revenue growth is likely to dip 1.4 per cent q-o-q (in line with management guidance of +0.3 to -2.3 per cent CC growth). EBITDA margin to expand 102 bps to 18.8 per cent due to benefits of currency and reversal of exceptional IT services. EBIT margin to be at 15.1 per cent vs 14.4 per cent last quarter. Net profit is expected to increase 5.4 per cent q-o-q to Rs 9 billion.

For the second quarter of the current financial year (Q2FY19), guidance is expected to be in the range of 0-2 per cent. Commentary on energy vertical and outlook for healthcare and HPS performance, signals of recovery in communication vertical, strategy to grow top-10 accounts and margin outlook are key monitorables for the company.

EDELWEISS

Wipro to post dollar revenue and CC revenue decline of 2 per cent and 1 per cent (q-o-q) respectively on account of seasonally weaker quarter for the company and client specific issues. Adjusted margins expected to remain flat (q-o-q) as rupee depreciation benefits will be offset by partial wage hike, visa costs and weak quarter

EMKAY GLOBAL

Peg net profit at Rs 197 billion, down 5 per cent y-o-y and up 9 per cent q-o-q. Sales may rise 3 per cent y-o-y and 2 per cent q-o-q at Rs 140.45 billion.