Wipro Q2FY24 preview: Commentary on large deal wins, attrition trends and outlook for Q3 among key monitorables

Wipro Q2 preview: In August this year, the domestic rating agency ICRA said in its report that the Indian IT services sector's revenue growth will slow down to 3 per cent in the current fiscal from 9.2 per cent in the previous financial year. The agency added that the profitability will also take a beating in this financial year and the operating profit margin will narrow by up to 1 percentage point to 20-21 per cent.

Last week, the muted showing by the top three IT majors, TCS, Infosys, and HCL Tech, also signalled that the rough ride for the IT services companies is unlikely to end anytime soon.

Weak global cues and a cut in discretionary spending by clients are expected to sharply reduce campus intake by the Indian IT industry this year, with market watchers saying that Infosys and HCL Tech's subdued take on hiring signals a tough road ahead for freshers in the near term, according to a PTI report.

Given this scenario, Wipro is also expected to put up subdued numbers for the quarter ended September 30, 2023 (Q2FY24). The Bengaluru-headquartered IT services company is slated to declare its financial results on Wednesday, October 18.

JM Financial, in its results preview note, says Wipro's IT Services segment revenue in US dollar terms is expected to come in at $2,755, down 0.8 per cent quarter-on-quarter (QoQ) and 1.5 per cent year-on-year (YoY). Revenue in rupee terms is estimated to come in at Rs 22,732 crore, down 0.1 per cent QoQ but up 1.7 per cent on a YoY basis. EBIT of the IT services vertical is seen at Rs 3,627.7 crore, down 0.7 per cent QoQ and up 7.3 per cent YoY. The EBIT margin of the IT services vertical is seen at 16 per cent, up 80 basis points (bps) on a YoY basis. On a sequential basis, EBIT margins are projected to be stable as lower revenue is expected to be offset by ongoing efficiency.

On a consolidated basis, Wipro is expected to report revenue of Rs 22,800.7 crore, down 0.1 per cent QoQ and up 1.2 per cent YoY. Consolidated EBIT is expected to rise 2.6 per cent QoQ and 12.8 per cent YoY to Rs 3,547.7 crore. Consolidated EBIT is estimated at 15.6 per cent, up 40 bps QoQ and 160 bps YoY. Further, the net profit is seen at Rs 3,043.2 crore, up 6 per cent QoQ and 14.5 per cent YoY. "We expect Wipro to guide for a 0–2 per cent QoQ constant currency (CC) growth in 3QFY24." the brokerage added.

IDBI Capital expects Wipro's IT services revenue to contract by 1 per cent in CC terms with a negligible cross-currency tailwind. Softness in the consulting business and client-specific challenges across geographies will impact revenue growth, the brokerage said. Moreover, it estimates the EBIT margin to shrink by 58 bps QoQ, led by a contraction in revenue growth.

Key things to watch out for

1. Outlook for Q3FY24E;
2. Outlook for consulting business;
3. Commentary on the large deal wins;
4. Leadership changes and impact;
5. Commentary on the new strategy to turnaround;
6. Commentary across verticals, especially BFSI, consumer, hi-tech, and manufacturing business units
7. Attrition trends 
8. M&A and capital allocation 
9. Outlook on any other macro challenges

Wipro share price

During the quarter under review, the stock of the company slipped over 2 per cent. In comparison, the Nifty IT index gained 7.5 per cent during the window, while the NSE's Nifty increased by 2.3 per cent.