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Wipro Q2 preview: Analysts see 1.3% QoQ revenue growth in constant currency

Topics Wipro results

After muted show by its peers Tata Consultancy Services (TCS) and Infosys, Wipro, too, is expected to report subdued numbers when it releases its second quarter results for the financial year 2019-20 (Q2FY20) on Tuesday.

The IT services company has seen some improvement in its revenue growth in the last few quarters but, as per analysts, it continues to lag peers on a relative basis. 

"We believe that this is set to continue through FY20 as growth in Financial Services slows down, which is reflected in June 2019 quarter performance as well, and drag from verticals such as Healthcare (13 per cent of revenues), Manufacturing (8 per cent of revenues) and Technology (13 per cent of revenues continues). Wipro’s September 2019 quarter revenue guidance of 0-2 per cent QoQ constant currency (CC) growth fails to provide any confidence on revenue growth pick-up after a very muted revenue show in June 2019 quarter," wrote analysts at Emkay Global in earnings preview note. 

For the quarter ended September 30, shares of Wipro have underperformed the market by falling around 15 per cent as compared to 2.67 per cent decline in the Nifty50 index. The Nifty IT index has shed 2.49 per cent during the same period, ACE Equity data shows. 

Here's a quick look at what leading brokerages expect from September quarter results - 


We forecast 1.3 per cent QoQ CC revenue growth (90 bps cross  currency impact) and EBIT (earning before interest and tax) margin fall of 70 bps for IT services including India State Run Enterprise services segment business (ISRE), to 16.6 per cent owing to two months of wage impact and weak revenue momentum, partly offset by rupee depreciation. We expect Wipro to guide for 0-2 per cent revenue growth for 3Q. 

Key to monitor: BFSI outlook, where growth is impacted by weakness in capital markets and large EU banks, when we expect a healthcare to bottom and recovery in Consumer (impacted by project delays), progress on restructuring in India/Middle East (ME) and margin levers.

Motilal Oswal Financial Services (MOFSL)

Some delays in decision-making within BFSI would mean backended growth for FY20. Growth in BFSI is expected to be partially impacted by weak IT spendings by European banks. We expect Wipro to guide for 1-3 per cent QoQ CC growth for 3QFY20. We expect IT Services EBIT margin to be at 18.7 per cent, up 30bp QoQ; cost optimisation measures will be partially offset by two months of wage hike in 2QFY20. Our PAT estimate for the quarter is Rs 2,240 crore, -4 per cent QoQ and -2.1 per cent YoY, due to lower other income.

Prabhudas Lilladher

Expect Constant Currency (CC) revenue growth of 1.3 per cent and cross currency headwinds of 70 basis points (bps). We expect EBIT margin to decline due to wage hikes. We expect Wipro to guide revenue growth of 0 per cent - 2 per cent for Q3FY20E. Cautious commentary likely from management on US and Europe BFSI vertical. Investors should focus on sustainably of growth, commentary on Financial vertical, and margin guidance in the absence of revenue growth.

Edelweiss Research

We expect Wipro to deliver CC growth of 1.9 per cent for Q2FY20, but cross-currency headwinds of 65bps imply USD revenue growth would be 1.2 per cent QoQ. Adjusted EBITDA margin is expected to expand 20bps as the impact of wage hikes is behind while a weak rupee, premium pricing and operational efficiencies should aid margin further. Demand outlook for E&U, commentary on large deal wins and guidance for digital revenue growth are the key aspects to monitor.

ICICI Securities

Revenue growth guidance for Q3FY20, which we expect to be in the range of 0-2 per cent QoQ in CC terms. Outlook on manufacturing, HealthPlan Services (HPS) and hi-tech segments, which are expected to see muted demand in the near-term. Timelines for completion of milestones on ISRE projects which should get the segment to atleast a break-even from -29.7 per cent EBIT margin in Q1FY20.

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