Jefferies expects 2.5 percent constant currency revenue growth (1.9 percent USD) that includes 1.2 percent contribution from Alight acquisition
Country's fourth largest IT services company Wipro is expected to meet its revenue growth guidance for the quarter ended December 2018. It is likely to forecast the same growth range for the last quarter of FY19 as well.
The company is going to deliver its December quarter earnings on Friday, January 18.
The key points to look out for in Q3 earnings would be revenue contribution from Alight Solutions deal, commentary on several key verticals, constant currency IT services revenue growth and margin expansion.
Most analysts expect the revenue growth in constant currency terms towards the higher end of the guided range, at around 2-2.5 percent against the company's guidance of 1-3 percent QoQ, driven by Alight acquisition. Hence, the topline growth range in dollar terms could be more than 1.5 percent QoQ.
Jefferies expects 2.5 percent constant currency revenue growth (1.9 percent USD) that includes 1.2 percent contribution from Alight acquisition. "Reported IT services revenue will be lower by $34 million as management had indicated plans to hive off and report PSU/government revenue separately from Q3."
PhillipCapital also said it expects IT services to report CC revenue growth of 2.5 percent QoQ (adjusting for India PSU/Government business carve-out in Q2—near the higher-end of the guidance of 1-3 percent).
"There will be negative cross-currency impact of 80bps. Alight Solutions deal will provide $25 million incremental revenues (incl in CC growth)," it said.
According to Edelweiss, Wipro is expected to deliver CC growth near mid-point of its guidance i.e. around 2 percent QoQ. However, 60bps cross currency headwinds are expected to bring down US dollar growth to 1.4 percent QoQ.
Margin expansion could be in the range of 0 to 90bps sequentially due to rupee depreciation and operational efficiency.
"We expect EBIT margin in IT Services to expand 50bp to 18.5 percent, led by INR depreciation and continued improvement in operational efficiencies (30bp)," Motilal Oswal said while Jefferies expects 70 bps expansion in margin.
CIMB sees IT Services' EBIT margin to increase 10bp QoQ on adjusted basis largely due to productivity gains and restructuring activities to be partly compensated by furloughs. Emkay expects flat margins on a QoQ basis as it expects INR depreciation benefits to get deployed into building a capable workforce.
The last key thing to watch out for would be its guidance for the next quarter i.e. January-March 2019 period.
"We expect decent guidance for Q4FY19 (1-3 percent), driven by ramp-up of Alight deal and a low base of Q3," PhillipCapital said.
CIMB said Wipro is expected to guide for constant currency revenue growth in IT services (excluding India PSU sales) of 0.5-2.5 percent QoQ for Q4FY19, which is seasonally a strong quarter.
Key issues to watch out for:
> Commentary on demand/margins
> Order book momentum in Q3FY19 and beyond, including demand outlook especially from energy, BFSI, Healthcare, communication, India and digital services segments, large deal pipeline/wins, outlook on pricing and update on any client-specific issues
> Commentary on growth in European market
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