Wipro may report 0% growth in Q4 CC revenue, but COVID-19 may force guidance fall in Q1 FY21

Profitability is likely to hit by subdued revenue growth, treasury gains and higher forex losses.

April 14, 2020 / 02:04 PM IST
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Wipro, the country's fourth-largest IT company by market cap, is expected to report zero percent revenue growth (in constant currency) in the quarter ending March 31 (Q4 FY20), experts have suggested.

They said that the dollar revenue could decline in the fourth quarter of FY20, but rupee revenue may witness marginal growth.

"Wipro's USD revenue is expected to decline by 0.4 percent QoQ led by weak BFSI (capital markets), COVID-19 impact and fall in crude prices. Growth will be at the lower end of the guided range of 0-2 percent in constant currency," HDFC Securities said.

The same was echoed by Centrum, which said, "We model 0 percent constant currency revenue growth for Q4FY20. Cross currency would be a headwind of 80bps for the quarter. Hence, reported USD revenues would decline by 0.8 percent QoQ."

On the operating front, there could be marginal growth in EBIT due to support from rupee depreciation and utilisation rates. Profitability will likely be hit by subdued revenue growth, treasury gains and higher forex losses.


"We expect a marginal increase in EBIT margin (80bps QoQ) due to rupee depreciation against the US dollar and increase in utilization rates," said Kotak Institutional Equities which sees EBIT growth of 4.6 percent QoQ.

Centrum expects 1.6 percent growth in EBIT and 10bps margin expansion on a sequential basis.

Given the extended lockdown till May 3 and likely recession due to COVID-19 crisis, brokerages expect Wipro to guide degrowth in constant currency revenue in April-June quarter.

"Q1FY21 guidance is expected to be in the range of 0 to -4 percent in constant currency (led by COVID-19 and low oil prices)," HDFC Securities said.

Owing to COVID-19 impact, which has led to a steep impact on macro-economy, Centrum expects headwinds in most of the verticals.

The brokerage downgraded Wipro USD revenue growth to (-5.9 percent) for FY21 (versus 3.8 percent growth modelled earlier). "We expect large clients to bargain on pricing owing to steep macro challenges and recent steep INR depreciation. Hence, we expect higher decline in USD revenues in FY21 for Wipro."

Key things to watch out for would be clarity on the selection of new CEO, assumptions for the guidance provided and capital allocation policy, guidance for Q1FY21 to understand near term challenges, commentary across troubled verticals (Retail, Energy etc), pipeline deal and TCV wins, growth in digital business and stress in legacy portfolio.

Margin trajectory considering the impact from COVID-19, commentary on business continuity plan (BCP) and WFH from the perspective of BPO and IMS segment will be other key things to watch out for.

Wipro has initiated the search for new CEO after Abid Ali resigned in end-Jan 2020.

"The new CEO has a daunting task on hand. The key priorities for the new CEO would be to tighten performance management systems, increase mega-deal focus and shrink the focus of the organization to fewer relevant verticals. BPO is not the most amenable offering to WFH. Wipro's high contribution to revenues from BPO makes it more vulnerable," Kotak said.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: Apr 14, 2020 02:04 pm

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