Wipro Q1FY20 preview: Analysts see modest revenue growth, EBIT margin dip

Wipro, India’s fourth largest software company, is scheduled to release its April - June 2019 quarter results (Q1FY20) on July 17 and analysts expect a moderate revenue growth along with a fall in the earnings before interest and taxes (EBIT) margin.

The company had reported a net profit of Rs 2,099 crore during Q1FY19, with a gross revenue of Rs 13,980 crore. It had given a revenue growth guidance of +/- 1 per cent for the June 2019 quarter.

Here is what leading brokerages expect from the company on July 17:

Motilal Oswal Financial Services

The brokerage firm pegs profit after tax (PAT) at Rs 2500 crore, up 33 per cent from a profit of Rs 2,099 crore during the same quarter last year. On a sequential basis, however, MOFSL expects a flat growth in PAT of 1.5 per cent over as compared to Rs 2,483.5 crore clocked during the January-March 2019 quarter.

 

Edelweiss Securities

Expects the IT firm to deliver no constant currency (CC) growth; 22 basis point (bps) of currency headwinds imply a revenue decline. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) margins are projected to dip by 90 basis points (bps) owing to wage hikes and a strong rupee, which could be marginally offset by premium pricing and operational efficiencies. Demand outlook in EU commentary on large deal wins are key monitorables.

ICICI Securities

Expects IT Services (ex-ISRE) EBIT margin on an adjusted basis to decline by 150bps QoQ to 17.7 per cent, given the impact of wage hikes (for one month), visa costs, cross currency headwinds and currency appreciation. IT Services (ex-ISRE) EBIT margin in Q4FY19 was impacted on account of Rs 148 crore impairment charge on account of HPS acquisition and Rs 155 crore gain on sale of Workday/Cornerstone business to Alight.

“We expect Wipro to guide Q2FY20 revenue growth in the range of 1.5-3.5 per cent QoQ in CC terms. Wipro will need to deliver a strong Q2 if they are to achieve their expectation of growing revenues faster in FY20 compared to 5.4% growth in CC terms reported in FY19,” they said in an earnings preview note.

Centrum Wealth Management

The street would watch for consistency in execution. Even post the completion of buyback, Wipro would still have net cash of Rs 17,500 crore on balance sheet (around 10% of Market-cap). We expect IT Services EBIT margin at 18.4 per cent, down 80bps QoQ (Wipro gave wage hikes effective June and hence has one-month impact of wage hikes). Our EPS estimates are Rs17/18.8 per share for FY20E/FY21E, respectively. The stock trades at 14x FY21E EPS.

Kotak Securities

Expects constant-currency revenue growth of 0.4 per cent and cross-currency headwind of 65 bps. Revenue growth to be lower on reported basis due to divestment of Workday business that impacted revenues by $9 million. Revenue growth expectation is within Wipro’s guidance +/- 1 per cent for the June 2019 quarter.

EBIT margin is likely to decline due to wage revision effective June 1, 2019, marginal appreciation of rupee against the US dollar and weak revenue performance. Net profit growth appears modest on YoY comparison, despite strong EBIT growth due to high base of the June 2018 quarter where the company booked non-recurring gain of Rs 250 crore from sale of hosted data center business.