Wipro Q2 beats estimate: Analysts to upgrade their outlook?

Despite Wipro's stellar second quarter performance, Basudeb Banerjee, Research Analyst at Quant Broking says that the broking firm is unlikely to upgrade the company's EPS estimates.

Meanwhile, Harit Shah, Senior Research Analyst at Nirmal Bang Institutional Equities said that revenue was in line with expectations and net profit was better than expected mainly on account of the higher than anticipated margins. "We were expecting about USD 1,629 million revenue and Wipro delivered USD 1,631 million. So, we will revise Wipro's earnings estimate," he added. However, Ankita Somani, Analyst at Angel Broking is of the view that Wipro has been a laggard in terms of revenue growth among the top four IT companies. Her pecking order remains the same, with TCS leading the pack, followed by HCL Tech and Infosys and then Wipro. Also Read: Wipro Q2 net up 28% at Rs 1932 cr, margin beats street Below is the verbatim transcript of Basudeb Banerjee, Harit Shah & Ankita Somani's interview on CNBC-TV18 Basudeb Banerjee, Research Analyst, Quant Broking Q: What is your first reaction on Wipro's Q2 numbers? Would you upgrade your EPS estimates given the margin beat? Banerjee: Not likely. Primarily our revenue estimate was USD 1,631 million; it is exactly the same number. Our EBIT margin in IT services was 21.2 percent, it came at 22.5 percent; so it beat our margin estimate by 130 bps. So primarily in terms of margin there was an outperformance and in terms of consolidated earnings we took a forex loss of around Rs 350 crore. The PAT which came in at Rs 1,913 crore, the forex loss amount must have been significantly lesser than our estimate, but in terms of operational performance on a positive note you can say 100 bps better than expected EBIT margin in IT services. In terms of guidance as we have said rightly 1.7 percent to 3.6 percent for next quarter. We were anyhow taking 1.8 percent growth earlier also for the next quarter, so scope of increasing that will be very small. Our price target anyhow is around Rs 480. We do not see massive increase in our numbers from current level. Harit Shah, Senior Research Analyst, Nirmal Bang Institutional Equities Q: What is your sense of Wipro's Q2 numbers? How is the performance so far judging by your estimates? Shah: The revenue was in line with our expectations. We were expecting about USD 1,629 million, Wipro did deliver USD 1,631 million. The guidance for the next quarter is quite decent. 1 to 3.5 percent kind of growth is what they have guided for. That is again maybe in line with expectation. This quarter's net profit of course was better than expectations mainly on account of the higher than anticipated margins. I have not got a chance to look at the internal details of this quarter's performance, but by and large you could say our revenue was in line and net profit above estimates. That is how I would look at it right now. Q: Would you change any of your estimates for Wipro post these earnings? Shah: I will have to increase my earnings mostly because their net profit was above what we were expecting, so we will have to do a bit of work on revising that number. With regards to revenue number, of course that is something which we will again have to take a relook and see what to do. We are not sure at this point given the details of the number. Once we have more details on revenue growth then we can take a call. Q: How would you be placed on margins for the coming quarters? Do you think that they could possibly sustain 22.5 percent? Shah: You may see some pressure in the third quarter. Our third quarter strictly tends to be a bit lower and given the furloughs and shutdowns that they tend to see towards the year end, so in that respect you may see it at best being at current levels or maybe slightly lower. I do not think there is any significant scope for expansion from current levels. Q: How soon do you think before Wipro starts coming out with earnings similar to a couple of its larger peers? Shah: I think what it more important is that they start recording similar revenue growth. Even if you see the third quarter their Y-o-Y implied revenue growth is about 6.5-7 percent. That is still well below Infosys and Tata Consultancy Services (TCS). BSE companies are recording around 14-16 percent revenue growth. Clearly until that happens there is no doubt that the kind of multiple that Wipro will command will have to be atleast 10-15 percent kind of discount to the multiple that is commanded by Infosys. Ankita Somani, Analyst, Angel Broking Q: So far Wipro has underperformed its peers. Even if you look at it on a year to date basis Wipro has only rallied about 28 percent thereabout, Infosys is at more than 40 percent, TCS and HCL Tech are way higher at over 70 percent. Do you think that pecking order will stay given this Q2 performance and the guidance that you have seen for Q3? Somani: If you look at the relative discounts definitely that pecking order will stay because TCS is getting rewarded for the performance the company is delivering. Again Infosys since last two quarters they have been giving consistent results and that is why in Infosys the discount that it used to get now that has also come down. HCL Tech is again performing reasonably well. So, Wipro is one company which is loosing out or probably a laggard in terms of revenue growth among the top 4 companies. So, guess the discount with these companies will continue. Q: Judging by the guidance that Wipro has given how do you really see Wipro's performance in Q3 and Q4 versus its peers - considering the fact and of course, keeping in mind that this would be a seasonally weaker quarter Q2 & Q3 specifically? Somani: For Wipro we were building at about 2 percent and I expect companies like Infosys to give about 2-2.5 percent in the next quarter. TCS is expected to post higher than 2 percent in the next quarter. HCL Tech will be around 2.5 percent. My point remains the same that the pecking order in these companies will remain the same with TCS leading the pack and HCL Tech and Infosys following and after that Wipro following.