IT services provider Wipro is expected to report quarterly revenue growth for Q3FY22 at the top-end of guidance, but wage hike and attrition could dent margin. The company will release financial results today.
The stock registered 9.5 percent return since the beginning of December quarter till January 11, slightly underperforming the Nifty IT index that gained more than 10 percent in the same period but outperformed benchmark Nifty50 that rallied 2.5 percent.
According to analysts, who largely track only IT services business of Wipro, the sequential growth in revenue from operations in constant currency terms could be around 4 percent for December 2021 quarter, against the company's forecast for Q3FY22 at 2-4 percent growth over Q2FY22, but total contract value (TCV) of deals could be muted.
Kotak Institutional Equities expects sequential revenue growth of 4.4 percent in constant currency terms, which is above the guidance range of 2-4 percent, powered by continued strength in discretionary spends, and success in mining of large accounts. "We expect muted TCV of deals. Growth is powered by discretionary programs," said the brokerage.
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Elara Capital feels IT services constant currency revenue growth may be at 4 percent.
Q4 Guidance
Most of analysts, including Kotak, Elara, and Sharekhan, expect Wipro to forecast 2-4 percent growth in revenue in constant currency terms, over and above the revenue in Q3. This excluded any contribution from acquisitions.
"Revenue growth guidance for Q4FY22 is expected at 2-4 percent factoring Edgile and LeanSwift consolidation in Q1," said Elara Capital.
Margin Performance
Wipro is expected to report 20-50 bps sequential decline in the EBIT margin for the quarter ended December 2021, dented by wage hikes and higher attrition rate.
"We expect the EBIT margin decline of 20 bps QoQ on account of (1) full quarter impact of wage revisions at the mid and junior levels that was effective September 1, (2) lower employee utilisation rate, and (3) impact of attrition," said Kotak.
According to these analysts, profit growth on sequential basis could be in the range of 1-4 percent for the quarter.
Key Things To Watch Out For
Deal wins TCV; commentary on pipeline, Capco cross-sell, hiring and attrition scenario; levers to defend margins noting potential increase in cost structure and wage pressure; measures to staff projects and handle supply-side challenges; indications on IT spending for CY22; success in getting price increases to offset cost pressures; commentary on magnitude of opportunities from shifting of budgets towards digital and cloud-transformation initiatives, and the duration of growth; outlook on demand environment in the financial, energy, and healthcare verticals; and commentary on any other future M&A activities are key things to watch out for on January 12.
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