Wipro Ltd is slated to announce its Q3 FY25 earnings on January 17, with analysts forecasting a quarterly decline in revenue as well as net profit. Seasonal weakness in its consulting business, higher furloughs and cross currency headwinds in Q3 are likely to weigh on Wipro's earnings growth in constant currency (CC) terms.
A Moneycontrol poll of nine brokerages estimated Wipro's revenue to decline 0.6 percent to Rs 22,176 crore in the October-December period, down from Rs 22,302 crore recorded in the previous quarter.
Analysts also expect consolidated net profit to register an 5 percent drop on-quarter to Rs 3,040 crore. The IT major had recorded a net profit of Rs 3,209 crore in the preceding quarter.
Meanwhile, the company's EBIT margin is likely to contract 40 basis points on quarter to 16.1 percent as per the estimates as it suffers from cross currency headwinds. Among the brokerages polled, Emkay Institutional Equities sees the lowest decline in net profit at nearly 2 percent while JM Financial foresees the sharpest fall at over 9 percent.
What factors are driving the earnings?
Client-specific issues in select verticals, coupled with seasonal weakness, higher furloughs and the impact of wage hikes will affect the Q3 earnings performance for Wipro.
Client-specific issues: Brokerage firm Elara Capital noted that Wipro's client-specific issues that hit its growth in the Banking & Financial Services (BFS) and Healthcare verticals in Q2 may continue in Q3 as well, dragging growth.
Cross-currency headwinds: The impact of cross currency headwinds is expected to adversely impact Wipro's revenue growth in CC and dollar terms. Elara Capital expects revenue to decline 0.9 percent in CC terms and 1.5 percent in dollar terms. For Q3, Wipro had rolled out a revenue growth guidance of -2 to o percent in CC terms, and the expectations fall right in the median of that range.
Wage hike impact: Brokerages on the Street seem to be divided over the impact of wage hikes on Wipro's operating margins. Wipro undertook a wage hike on September 1, the full impact of which will be felt in Q3. While Elara expects a 10 basis points drop in Wipro's EBIT margin, Kotak Institutional Equities believes margins will remain stable due to rupee depreciation and a tight leash on overall costs.
What to look out for in the quarterly show?
Given that the Street's consensus suggests Wipro's revenue growth to fall within its previously guided range, all eyes will be on the IT major's topline guidance for Q4. Analysts at HDFC Securities anticipate Wipro to deliver a revenue growth guidance of-1 to +1 percent sequentially in CC terms for Q4. KIE and Emkay Global differ, expecting the growth guidance to be in the range of -0.5 to +1.5 percent for Q3.
Meanwhile, focus will also be on the commentary and tonality of discretionary demand environment and budget indicators for CY25. In addition, investors would also be eager for details on the company's capital allocation plans, more so since Wipro's net cash crossed Rs 30,000 crore as the new CEO remains focused on organic growth.
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