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Wipro Q4 preview: Covid-19 impact on business, update on CEO hunt eyed

Topics Wipro | Q4 earnings | Coronavirus

Travel restrictions may impact new client wins, large deal closures and ability of the companies to ramp up projects, analysts note.
The economic dislocation due to the outbreak of coronavirus (Covid-19) is expected to hit the March quarter earnings (Q4FY19-20) of Indian information technology (IT) companies, mainly in the form of revenue loss due to lockdowns, slower client decision and lower discretionary spending.

That apart, travel restrictions may impact new client wins, large deal closures and ability of the companies to ramp up projects, analysts note.

While the depreciation in rupee against the US dollar is a silver lining for them, the benefits of it, as per analysts, will be offset by a loss of billings (or decline in utilisation) leading to flattish margins on sequential as well as annual basis.

Among large-cap IT companies, Wipro is slated to announce its March quarter results (Q4FY20) on Wednesday, April 15. Most brokerages expect the  company's revenue growth to come in at the lower end of the guided range of 0-2 per cent in the constant currency (CC) terms.

"Wipro’s US dollar revenue is expected to decline by 0.4 per cent quarter-on-quarter (QoQ) (+0.1 per cent CC) to $2,086 million led by weak Banking, financial services and insurance (BFSI), Covid-19 impact (nearly two weeks) and fall in crude oil prices," note analysts at HDFC Securities in an earnings preview note.

The brokerage sees consolidated earnings before interest and tax (EBIT) margin to decline 24 basis points (bps) to 16.9 per cent during the period while its IT services EBIT margin is expected to drop by 30 basis points (bps) QoQ to 18.1 per cent led by lower revenue and cross currency impact offset by rupee depreciation and lower travel cost.

Analysts at Kotak Securities see a 3.3 per cent year-on-year (YoY) rise in the company's revenue (net sales) at Rs 15,697.7 crore. On QoQ basis, the numbers are expected to grow 1 per cent. Reported PAT (profit after tax) is projected to come in at Rs 2,586.6 crore, up 4.2 per cent YoY and 5.3 per cent QoQ. EBITDA margin is likely to rise 104bps YoY and 80 bps QoQ to 21.6 per cent. The brokerage expects Wipro to guide for 1-4 per cent revenue decline in constant currency (CC) for June 2020 quarter.

"We expect global IT services revenues to remain flat QoQ in constant currency (at the lower end of the guided range of 0-2 per cent)," says ICICI Securities.

Adding, "With cross-currency headwind of 0.2 per cent, US$ revenues in IT services segment may decline 0.2 per cent QoQ to US$2091 million. In rupee terms, consolidated revenues may grow 1.2 per cent QoQ to Rs 15,662 crore. Global IT services EBIT margins are expected to expand 30 bps QoQ to 18.7 per cent benefitting from rupee depreciation and an uptick in utilisation."

What to watch out for?

Guidance for the first quarter of the financial year 2020-21 (Q1FY21) in the wake of Covid-19 crisis, update on search for new CEO post-Abidali Neemuchwala resignation in January 2020, outlook on Energy, Natural resources & Utilities (ENU) vertical amid a collapse in oil prices, and impact on the BPO vertical revenue where work from home (WFH) is difficult to execute, are among the key things to watch out for.

That apart, deal pipeline and total contract value (TCV) wins, growth in Digital business and stress in the legacy portfolio, will also be keenly watched.

At the bourses, shares of the company have slipped around 21 per cent during March quarter as against nearly 29 per cent slump in the benchmark S&P BSE Sensex.

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