Wipro to announce Q1 earnings today; key things to watch out for

Wipro, country's third largest software services firm, is expected to report a marginal sequential drop in constant currency revenue for the June quarter later in the day, while the company will also consider a proposal for buyback of its equity shares.

Analysts believe revenue growth in CC terms would be well within its earlier guidance of negative 2% to nil growth for the quarter. In dollar terms, the revenue is seen declining by 0.1-0.5%.

The IT firm is seen reporting 3-5% growth in net profit (rupee terms), while it is expected to post a 60-100 basis points sequential fall in margins. Margins for the Bangalore-based firm may fall on the back of decline in organic revenues, partial impact of wage hike, appreciation in rupee and visa costs.

Analysts said that the weakness in healthcare vertical and seasonal softness in India and Middle East may take a toll on the IT firm's overall quarterly numbers.

"Wipro gives wage hikes effective June and hence, Q1 would have only a partial impact of wage hikes. We model IT services EBIT margin at 17% in Q1 against 17.6% delivered in the March quarter," said brokerage Prabhudas Lilladher in a quarterly preview report.

Brokerage Motilal Oswal Securities estimated 110 bps fall in EBIT margin for the IT services, while the profit after tax (PAT) is seen falling by 4% QoQ to Rs 1,860 crore on account of the decline in revenues and dip in profitability.

Wipro may guide for 1?2.5% QoQ growth in dollar revenues for the September quarter, Prabhudas Lilladher noted.

Besides buyback, investors will also track the management commentary on revival in energy and utilities vertical, BPM segment and restructuring of business in India and Middle East, the brokerages said.

Investors will also focus on the efficacy of measures taken to improve sales effectiveness, account mining and to defend shares in core areas of competence. Growth from top 10 accounts, increase in $100 mn+ clients and integration progress on various acquisitions will also be closely watched.

Meanwhile, Edelweiss Securities believes Wipro’s turnaround is nearly three quarters away, but inexpensive valuations and buyback will limit downside on the stock.

At current levels, the stock is trading at 15 times its FY18E and 13.7 times its FY19E earnings.

Wipro Technologies (Wipro Ltd)