Wipro to announce Q1FY18 results today; 8 factors to keep an eye on

Wipro, one of the largest IT services providers, will announce its April-June quarter earnings on Thursday.

Revenue

Dollar revenue is expected to fall 0.3 percent sequentially to USD 1,948 million from USD 1,954.6 million, according to average of estimates of analysts polled by CNBC-TV18.

Revenue in rupee terms may fall 4.3 percent to Rs 12,828 crore compared with Rs 13,402 crore in previous quarter.

Generally the Street looks at company's IT services earnings.

Operational Numbers

Earnings before interest and tax (EBIT) is expected to fell sharply to Rs 2,121 crore during the quarter from Rs 2,527 crore in March quarter and the margin may shrink by 230 basis points to 16.5 percent on sequential basis.

Guidance

Analysts expect the company to guide its dollar revenue growth in the range of 0-2 percent or 1-3 percent for July-September quarter.

For the June quarter, Wipro guided dollar revenue growth at negative 2 percent to zero percent growth.

Factors

Traditionally June quarter has been a soft quarter for Wipro but this time Q1 could be weaker than usual due to incremental headwinds in healthcare (contributes more than 15 percent to total revenue) and retail segments.

Weakness in healthcare is due to HPA acquisition, and management expected HPA to bottom out in Q1 and recover thereafter. It also expected challenges in communications verticals due to delays in decision making, and last leg of restructuring in India and Middle East businesses.

InfoSERVER (a recent acquisition for USD 8.7 million in Brazil) will be consolidated in the Q1 financials; however, this is unlikely to be material, analysts feel.

Margins may decline due to weak revenues, rupee appreciation and wage hike starting June 2017.

Outlook for the year

After Q4FY17 earnings, the company said it expected company-specific issues to bottom out by Q1 and expected improvement thereafter and convergence with industry growth from Q4.

It also expected to maintain IT services EBIT margin in a narrow range in FY2018 (versus 17.9 percent in FY2017) on constant currency basis.

Key headwinds are impact of full year consolidation of Apperio acquisition and rupee appreciation.

The management indicated that it has (1) structural levers such as improving profitability of acquisitions and turnaround in India and Middle East business after completion of restructuring exercise, and (2) operational levers at hand are automation led by HOLMES.

Vertical commentary

Wipro after Q4 earnings said BFSI—Wipro was seeing good traction in the BFS segment led by demand for new services and its automation platform HOLMES.

It further said manufacturing and technology vertical was seeing some discretionary spends, recovery in technology clients and demand for cloud services.

Energy and utilities vertical has bottomed out and growth momentum seen in Q4 is expected to continue.

It said retail—structural challenges exceeded demand for new services but the outlook in retail clients would be week.

Communications—inability to backfill revenues upon completion of three transformational projects due to decision-making delays impacted growth in Q4 and weakness would continue in the near-term.

Buyback

Wipro is expected to consider the issue of buyback of shares. It has cash on books of USD 5.3 billion.

If it announces 10 percent buyback, then it has to shell out Rs 5,190.9 crore and at 25 percent buyback, it will fork out Rs 12,975 crore.

Stock performance

The stock price significantly outperformed its peers. Wipro rallied 14 percent year-to-date against HCL Technologies up 5.5 percent, TCS 1.7 percent and Infosys down 1.5 percent.