Wipro is set to announce its third-quarter results for Q3FY25, and expectations are subdued on furloughs, wage hike impacts, and seasonal weaknesses in the consulting business.
The Street would be closely watching how the company balances these headwinds with operational efficiencies, large deal ramp-ups, and margin levers.
The Bengaluru-headquartered firm will report its Q3 earnings on January 17.
A Moneycontrol poll of nine brokerages estimated Wipro's revenue to decline 0.6 percent to Rs 22,176 crore in the October-December 2024 period, down from Rs 22,302 crore in the previous quarter.
Analysts also expect consolidated net profit to register a 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.
As investors await the earnings report and management commentary, here are the top five themes that might play out in Q3.
Revenue growth, guidance
India’s fourth-largest information technology (IT) company's services revenue is expected to decline by 0.6 percent in constant currency (CC) terms and 1.3 percent in USD terms, according to brokerage Nuvama Institutional Equities.
On the other hand, brokerage JM Financial estimates a 50 basis points (bps) CC revenue decline within the guided range of -2 percent to 0 percent, while Kotak projects a narrower revenue decline of -0.5 percent to +1.5 percent.
One basis point is one-hundredth of a percentage point.
“We expect a revenue decline of 0.6 percent on an organic c/c basis due to the seasonal weakness in consulting and furloughs that will offset benefits from the ramp-up of some of the large deals,” Kotak Institutional Equities said in a pre-earnings research note.
Meanwhile, analysts expect the company to guide revenue growth in the range of -1 percent to +1 percent in CC terms for the fourth quarter (Q4FY25).
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Margins
Margins remain a key area of focus, especially given the two-month wage hike impact during the quarter. Nuvama expects a sequential margin contraction of 50 bps, while JM Financial forecasts a 20 bps EBIT margin expansion to 17 percent, driven by operational efficiencies and favourable forex market conditions.
Analysts mostly expect margins to be stable at 21.2 percent and will be watching out for the management commentary on the performance of margin levers outlined in Q2FY25.
“Operational efficiencies and favourable FX will likely aid a 20bps sequential expansion in EBIT margin to 17 percent,” JM Financial said in a research note.
Investors will also watch for updates on margin drivers such as subcontractor cost optimisation and pricing strategies.
Demand environment
Wipro’s demand environment continues to face pressure, particularly in the BFSI (Banking, Financial Services and Insurance) segment and the Capco business, which could see a decline in demand due to furloughs and sustained weakness in energy and utilities (E&U).
JM Financial highlights a potential strength in the telecom and hi-tech verticals, supported by the ramp-up of a $500 million deal.
Focus will also be on the TCV (total contract value) of large deals, which Kotak estimates at $3 billion for the quarter.
Analysts will keep a keen eye on the annual contract value (ACV) of deal wins and the revenue conversion rate of recent deal ramp-ups.
Consulting business
Analysts will also look for updates on deal execution and the outlook for the Capco business, which has been emerging out of the woods in recent quarters.
In Q2, Chief Executive Officer Srinivas Pallia had said that subsidiary Capco maintained its momentum for another consecutive quarter.
However, seasonal weakness in Wipro’s consulting business is expected to impact organic growth.
Kotak Institutional Equities highlights consulting as a key drag, apart from furloughs.
Updates on the Capco business and the broader consulting segment’s performance will be watched out for to gauge whether these challenges are short-term or indicative of deeper structural issues.
Senior management attrition
With talent management critical to growth, updates on senior management attrition will be closely watched. Wipro has seen continued attrition at the management level.
On November 25, Wipro appointed Omkar Nisal as its new Europe Chief Executive Officer, succeeding Pierre Bruno, who is the fourth big departure from the Wipro stable after Srinivas Pallia took charge on April 6 from Thierry Delaporte.
While Chief Technology Officer Subha Tatavarti resigned on August 12, Chief Operating Officer Amit Choudhary and Asia Pacific, India, Middle East, and Africa (APMEA) president Anis Chenchah resigned in May.
Interestingly, Choudhary, Chenchah, and Delaporte have all worked in France-headquartered Capgemini. Bruno, Tatavarti, Choudhary, and Chenchah were appointed during Delaporte's tenure at Wipro.
Investors are keen to understand how Wipro plans to address leadership transitions and maintain operational continuity amidst evolving market conditions.
Additionally, insights into client budgeting trends, wage hike cycles, and employee productivity measures will provide a clearer picture on this front.
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