Wipro Q3 Results Preview: CC Revenue, EBIT Margins Likely To Decline; FY24 Guidance In Focus

Azim Premji-backed IT giant, Wipro is set to declare its Q3 earnings report for FY24 on January 12. Accordingly, its share price will be in focus. Wipro is expected to record a weaker quarter with revenue in constant currency estimated to decline owing to uncertainties, while wage hikes may hit EBIT margins. Further, FY24 guidance may be squeezed lower by the company.

Ahead of Q3 results, Wipro's share price closed at Rs 448.05 apiece, down by 1.3% on BSE with a market cap of Rs 2,34,076.89 crore on Thursday.

Wipro will announce results for the third quarter ended December 31, 2023, on Friday, January 12, 2024, after stock market trading hours in India.

In Q2FY24, Wipro reported a consolidated net profit of Rs 2,646.3 crore, down by 7.8% QoQ and 0.5% YoY. Gross revenue reached Rs 225.2 billion ($2.7 billion1), a decrease of 0.1% YoY, while IT services segment revenue was at $2,713.3 million, a decrease of 2.3% QoQ. IT services segment EBIT for the quarter was at Rs 36.1 billion ($434.0 million1), an increase of 6% YoY. Further, Total bookings were at $3.8 billion, up by 6% YoY and large deal bookings were at $1.3 billion, up by 79.0% YoY.

What to expect from Wipro in Q3FY24?

Equirus Securities:

We expect IT services US$ sales to decline by 2.6% QoQ in CC terms (vs. guidance of qoq dip of 1.5% to decline of 3.5% qoq in CC terms). Recurring IT services EBIT margins are expected to dip by 12 bps led by soft sales performance and the impact from wage hikes eff. 01st Dec 2023. We expect Wipro to guide a decline of 1% QoQ to growth of 1% QoQ in IT services' US$ sales in CC terms for 4QFY24E.

Key things to look for: IT services (incl. ISRE) US$ sales growth and margin outlook esp. for 4QFY24E and beyond, margin outlook for the near term as well as medium to long term, any portfolio/client-specific issues esp. resulting from ongoing geopolitical/macro concerns, an update on deal pipeline (esp. for mega deals), client decision making and order book for 3Q and beyond, further sizable M&A plans post big M&A of Capco & Rizing and plans to drive synergy benefits from Capco/Rizing and capital allocation plans.

KR Choksey:

We forecast a 4.5% YoY decrease in revenue and a 1.5% sequential decline for Wipro for Q3FY24E. This is primarily due to prevailing macroeconomic uncertainties, weakened demand, client-initiated spending cuts, and challenges in converting total contract value (TCV) to revenue. EBIT is projected to experience an 18.1% YoY and a 7.5% QoQ decline due to revenue pressure. We expect a QoQ decline of 91 bps in the EBIT margin. Net profit is anticipated to decrease by 17.6% YoY and 4.9% QoQ.

Key Parameter: 1) Departure of key executives 2) Customer onboarding 3) Business opportunity pipeline 4) Guidance for revenue and margin in Q3FY24.

DOLAT Capital:

Expect revenue decline of 2.1% in CC terms QoQ (Qtrly guidance of -3.5% to -1.5%) due to softness in consulting and hi-tech spend. OPM for IT Services to contract by 150bps QoQ due to wage hike and absence of one-time benefit in Q2 (110bps).

Key Monitorable: 1) Expect Q4 rev growth of -1% to +1%, 2) Commentary on the outlook of large deal pipeline & leadership exits.

Anand Rathi:

- Wipro has faced revenue decline over the last three quarters
- Deal wins are not getting reflected in revenue growth as the previous assignments are getting paused or cancelled
-New deal ramp-ups appear to be on track and hence, there was an expectation that the company would return to growth by Q3. This did not materialise and now the expectation is that the company will return to growth by Q1 FY25
- With such revenue declines and higher-than-expected furloughs in Q3, the margins are also likely to have been impacted
- We have reduced margin expectation by ~100bp for FY25, leading to lower profit estimates

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.