Wipro Q1 preview: Cost control to aid profit; top brass attrition in focus

Wipro, one of the leading India information technology (IT) company is set to report its first quarter financial results for the fiscal year 2024-25 (Q1FY25) on Friday, July 19. 

The IT major is expected to see a tepid June quarter with revenues estimated to slide on a year on year basis and net profits seeing a marginal rise. That apart, analysts say that there are some positives, too, for Wipro who is seeing continued cost controls and a strong deal pipeline. 

According to brokerage estimates compiled by Business Standard, Wipro may see a revenues in the range of Rs 22,195 crore to Rs 22,409 crore for Q1, a fall 1-3 per cent year-on-year (Y-o-Y). Sequentially revenues are estimated to be flat, with a marginal increase of up to 1 per cent. The company registered revenues of Rs 22,195 crore in Q4FY24 and Rs 22,824 in the first quarter of FY24. 

 

Moreover, the IT major may report a net profit in the range of Rs 2,879 crore to Rs 3,024 crore for the June quarter, against Rs 5,945 crore in Q1FY24. This translates to an increase of 0-5 per cent Y-o-Y for Q1FY25. 

Though on a quarterly basis, profits could improve by 1-7 per cent. The company reported profit after tax of Rs 2,834 crore in the March quarter of FY24. 

Key monitorables: From the management, the street will look out for answers on questions such as continued senior leadership attrition, efficacy of measures taken by the new CEO to turn around the business, sustenance of greenshoots in the consulting business, positioning in cost take-out and vendor consolidation deals where Wipro can be vulnerable and margin levers to meet aspirational margin level of over 17 per cent. 

Meanwhile, here’s what key brokerages expect from Wipro’s Q1 results:

Kotak Institutional Equities: Analysts at Kotak contend that Wipro is set to see a flat growth in revenues Q-o-Q, though the revenues will be above their mid year guidance of -1.5- 0.5 per cent. 

They attribute relatively strong performance to strength in Capco and likely recovery in the Americas market. The brokerage forecasted a 30 basis points (bps) increase in earnings before interest and tax (Ebit) margin Q-o-Q due to cost containment and efficiency measures. 

Further strong deal signings after multiple quarters of disappointment with its first mega-deal since 2021 in the communications vertical will play out strongly for the company going forward.

“We expect revenue growth guidance of -1 to 1 per cent. We expect growth in the Americas to be offset by weak Europe and APMEA,” analysts at Kotak wrote in a report.

The brokerage has a ‘Sell’ call for the company with a target price of Rs 440. 

Nomura: Nomura also expects flat revenues Q-o-Q in constant currency (CC) terms. Analysts at the brokerage expect Wipro to guide for 0-2 per cent revenue growth in Q2FY25F (CC). 

“We expect Ebit margins to expand 30 bps led by continued cost control program and higher utilisation at Capco,” they said. 

Nomura has turned bullish on the IT services sector overall and upgraded its rating to ‘Buy’ for Wipro with a new target price of Rs 600. 

JM Financial: The brokerage estimated a 0.2 per cent CC revenue growth with a 20 bps cross currency headwind translating into flat Q-o-Q revenue growth in dollar terms for IT Services. 

Analysts expect pick-up in Capco to continue to drive BFSI segment growth however the firm will see sustained stress in telecom and hi-tech segments. 

The Ebit margins will improve by 40 bps to 16.8 per cent led by on-going cost efficiency measures and No wage hike in the quarter. Further, Wipro may report a healthy total contract value (TCV), led by Nokia and a $500 million telecom sector deal.

ICICI Securities: According to those at ICICI Securities, Wipro’s Ebit margins will move up 46 bps Q-o-Q from growth leverage and revenue acceleration in Capco.

Further, revenue growth will be 0.5 per cent Q-o-Q on the back of some recovery from the March quarter of FY24. 

There are expectations of some green shoots in BFSI segment as Wipro has the highest exposure to BFSI among tier-I at 33.5 per cent and further in consulting that contribute 9-14 per cent of revenue. 

This analysts say was indicated by Capco’s performance in Q4 and Accenture's commentary around consulting bottoming out. They also see some positive traction from Wipro's multiple AI initiatives through Q1. However, the brokerage maintained its ‘Reduce’ rating for Wipro with a target price of Rs 430

Nuvama Institutional Equities: Nuvama, too, estimates a flattish quarter for Wipro in rupee terms and a marginal decline of -0.2 per cent Q-o-Q in dollar terms. Margins are likely to be lower by 20 bps Q-o-Q.

“We anticipate Wipro to give -1 per cent to +1 per cent CC Q-o-Q revenue growth guidance for Q2FY25. We shall look for update on consultancy business and improvement in deal execution,” analysts at Nuvama Institutional Equities said.