IT player Wipro will release its first-quarter results of the financial year 2021 on July 14.
While the numbers are expected to show the pressure of coronavirus pandemic, investors will focus on the commentary on margin and the road ahead of the company.
Brokerages are of the view that the company's order pipeline and indication on return to normalcy on the pace of decision making, the magnitude of pricing pressure, levers to defend operating margin, the magnitude of cut in variable compensation and path to achieving industry matching performance will be in the focus of investors.
As per the estimates of Kotak Institutional Equities, Wipro may report a sequential revenue decline of 7.6 percent in constant currency (CC) and cross-currency headwind of 50 bps.
The brokerage expects revenue decline will be broad-based and particularly high in the consumer vertical and include the impact of both demand and supply-side factors.
"We expect a sharp revenue contraction of 10 percent quarter-on-quarter (QoQ) in the BPO service offering as approvals to transition to work-from-home (WFH) took longer in BPO services compared to IT services," Kotak said.
Kotak forecast EBIT margin decline of 70 bps QoQ and 140 bps year-on-year (YoY). EBIT margin headwinds are from lower utilisation rate, moderate pricing pressure and operating leverage hit offset by rupee depreciation, lower travel expenses and lower variable compensation, Kotak said.
Kotak is of the view that utilisation hit will be higher for Wipro due to the sharp revenue decline.
The company’s capital allocation decision will be in the focus of investors. As per Kotak, the company’s payout policy is close to 50 percent of net profit expected largely through buyback of shares.
"Wipro completed its last buyback in mid-September 2019. Regulations require a cooling-off period of 12-months before the next buyback announcement. Investors will seek reassurance on the continuation of buyback plan in the future," Kotak said.
"On guidance, we expect Wipro to guide for 1-4 percent QoQ revenue decline for September 2020 quarter in case it chooses to guide. Q1 FY21 will see a return to normal trend resulting in stronger FCF generation. However we do expect an increase in DSO days due to customer demand for a longer credit period," Kotak said.
Brokerage firm ICICI Direct expects the company's global IT services revenues to decline 7.6 percent QoQ in constant currency due to anticipated decline in BPO revenues and pressure in energy, retail and manufacturing verticals.
"With cross-currency headwind, we expect revenues to decline 8 percent QoQ. Further, EBIT margins in global IT services are expected to decline 74 bps due to a sharp dip in utilisation. On a consolidated basis, rupee revenues are expected to decline 6.3 percent QoQ while the EBIT margin is expected to decline 79 bps to 16 percent," ICICI Direct said.
"Long term strategy of the new CEO, strategy to drive industry-leading growth and revival timeline of impacted verticals will be in the focus of investors," ICICI Direct said.
Brokerage firm Motilal Oswal Financial Services is of the view that the company's new management’s strategy for Wipro would be in focus while the outlook on energy vertical is a key monitorable.
Motilal expects the company's overall revenue to decline 4.5 percent QoQ while PAT may see a 7.7 percent QoQ drop.Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.