 "All eyes on Wipro Q3 numbers; will the company deliver?")
After the better than expected performance of Infosys and not-so impressive numbers from Tata Consultancy Services (TCS), all eyes are now on Wipro, whose performance has been quite patchy in the last several quarters.
For example, after showing a healthy set of numbers in the fourth quarter (Q4) of FY14, the company could not continue with the same. Its numbers in the quarter ended June 30, 2014 (Q1FY15) was mostly in line with estimates. But it disappointed again in the next quarter (Q2FY15) when the IT services business missed the street’s estimates, with several key verticals showing sequential decline in growth.
The Q3 of FY15 is going to be a crucial quarter for the company. It has given a wide range of growth of 2-4% for its IT services business revenues. But its guidance for the Q4 of the fiscal will also be keenly watched. This is primarily because the company has earlier stated that it was expecting FY15 to be a better year than FY14.
With the first six months of the fiscal not being so impressive and the currency volatility expected to weigh on its Q3 numbers, Q4 of FY15 is expected to be a crucial quarter for the Bengaluru-based company.
“We expect Wipro to guide for 2-3.5% dollar revenue growth for 4Q FY15. Street would keenly watch for commentary on ramp up in large deals at Wipro,” a note by brokerage house HDFC Securities said.
Most of the analysts expect Wipro to meet the middle point of its Q3 revenue guidance given that historically Wipro has been quite consistent in meeting its guidance range and the demand trends seem to be stable.
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“For 3Q FY15, Wipro guided for a revenue of $1.80 - $1.84 billion, a growth of 2.1% to 4% Q-o-Q. The guidance given is in constant currency and based on the average Q3 cross currency rates, there would be headwinds of 210 basis points during the quarter,” a report by Credit Suisse said.
“Our growth estimate for Q3 FY15 stands at 0.9% in dollar terms (to $1,788mn) and 3% in constant currency terms, which is in the middle of the guidance band,” it added.
During the quarter, euro has depreciated 5.7%, British pound 5.2%, Australian dollar 7.5% and Japanese yen has depreciated 9.7% quarter-on-quarter. These are expected to impact the dollar revenue growth adversely.
Apart from revenues and profitability, Wipro’s performance on the margins front will also be eyed. In the Q2 of FY15, Wipro’s operating margin stood at 22%. Given that the expenses towards higher wage bill has already been accounted for in the previous quarter, the company is expected to show an improvement of around 40 – 60 basis points in operating profit margins.
Things to watch out for
* Guidance for Q4; any commentary on ramp up in large deals
* Management commentary on demand outlook
* Performance of key business verticals like BFSI, Media and Telecom, and region Europe
* Performance on the operating margin front