Will Wipro follow rivals' path in beating Q3 estimates?

IT major Wipro is set to announce its financial result for the quarter ended on December 31. In the previous quarter, the company had posted a drop of nearly 8% in its consolidated net profit. 

It had reported a consolidated net profit of Rs 2070.4 crore during the quarter as against Rs 2,241 crore during the same quarter last year. 

Guidance for Q3FY17

While announcing Q2FY17 result, the company gave the guidance for Q3FY17, in which it had said that they expect revenues from IT Services business to be in the range of $1,916 million to $1,955 million. 

The guidance given by the company looked weak to analysts. Axis Direct, in its report had said that the Q3 revenue guidance of 0-2% Quarter-on-quarter basis is below their expectations as it implies organic growth to be flat at -2.5%.

Having similar views, Jefferies, in its research report, said that the company has shown zero organic growth cumulatively over the past three-quarters, a trend that does not seem to be changing even in the next quarter (Q3FY17) on the back of the guidance. The lack of disclosures on inorganic growth and low growth also makes it difficult to evaluate the progress of the acquired companies.

Acquired Appirio

However, in this quarter result, another turning point which will be considered while calculating the financial result will be that during the September quarter, they had acquired a global cloud services company Appirio for $500 million. The US-based company has clients like Coca Cola, Facebook, Sony Playstation, eBay, among others. 

That time, the company had said that it expects to close the acquisition deal by December 31, 2016. Considering that, Vaibhav Dhasmana, Equity Analyst, Jefferies, in a note titled 'Wipro-Growth continues to remain elusive', said, "We believe that this is a good strategic bet in a high growth area, Wipro’s past history of being unable to capitalize on such acquisitions remains a concern".

Talking about the acquisition, JMFL, in its report had said, while the valuation appears high (2.6x sales), and the company is likely to have low margins (5-8%, JMFe), Wipro believes these are in-line with prevalent valuations/margins in the space.

Rivals (Infosys and TCS)

Wipro rivals, Infosys and Tata Consultancy Services has already announced its financial result in the beginning of earning season. 

Beating the estimates, Infosys reported a 7% rise in net profit of Rs 3708 crore in the quarter ended on December 31 on consolidated basis as against to Rs 3, 465 crore during the same period last year. 

The total income rose 8.3% to Rs 18,093 crore. Revenue rose 8.6% to Rs 17,273 crore in the three month period to December as against Rs 13,796 crore last year.

Also, TCS had posted a net profit of Rs 6778 crore, up by 10.9% during the December quarter. The company's revenue climbed by 8.7% to Rs 29,735 crore on year-on-year basis and on quarter-on-quarter basis it rose by 1.5%.

Looking at the share price, on Wednesday, the shares of  Wipro were trading flat. At 0944 hours the company's shares were at Rs 481.95 per piece, up 0.18% or Rs 0.85 on BSE.