Wipro Q4 preview: No positive surprises seen; management commentary, share buyback eyed

Wipro is anticipated to follow its peers Infosys and TCS suit when it releases its March quarter numbers (Q4FY23) on April 27, 2023. The Thierre Delaporte-led IT services firm is expected to see a sequential revenue decline in constant currency (CC) terms. Exposure to impacted verticals such as hi-tech and consumer, the slowdown in discretionary spending and higher exposure to consulting, as per analysts, will be the key reasons behind the revenue fall.

Besides, management's commentary on when will the conversion of total contract value (TCV) to revenue pick up will be keenly watched. Apart from this, investors will also focus on how impacted has been the consulting parts of its business – especially Capco, not only because of the general weak macro but also due to the recent problems in the US and European banking space. Further, will the firm be able to deliver in line with industry organic growth in FY24 and how it is handling the recent loss of top managers – like Angan Guha (he has joined Birlasoft as the CEO) and Rajan Kohli (who has joined as CEO of CitiusTech), will also be keenly tracked. Further, investors will keenly await the share buyback announcement. 

Here's what top brokerages expect in March quarter numbers

Nirmal Bang Securities

Analysts at the brokerage estimate (-)0.5% CC QoQ revenue growth in 4QFY23 as against (-)0.6-1% CC growth guidance given by the company. Cross currency tailwind will be ~210bps. The brokerage thinks Wipro will guide towards (-)0.5-1.5% CC growth on a QoQ basis for 1QFY24. Typically, 1Q has been weak due to productivity gains being passed on to some large customers. "We expect IT Services EBIT margin to expand by only 40bps QoQ as Wipro had guided for 16.3 per cent to be the new base for EBIT margin and slow & steady growth would be seen on this front on the back of higher utilisation, lower sub-con costs and pyramid benefits," it said. Attrition has been moderating for the last four quarters and this trend is expected to continue in 4QFY23. Analysts expect TCV to be lower than the $4.3 billion clocked in 3QFY23 as this was the highest-ever TCV in the history of the company.

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ICICI Securities

In IT services, the company is witnessing incremental pressure due to weak macros among some pockets such as US retail, technology companies, investment banking, etc, which are likely to impact Q4 revenues. The brokerage bakes in a 0.5 per cent QoQ decline in revenues in CC for the quarter while it builds in 100 bps cross-currency tailwinds for the quarter resulting in a +0.5 per cent QoQ increase in dollar revenues for the quarter. Rupee revenues are expected to increase by 0.5 per cent QoQ for the company. We expect Wipro to report a 30 bps QoQ EBIT margin decline in IT services despite some tailwinds available in terms of moderation of attrition etc on account of weak revenues, lower utilisation, some incremental expenses in terms of facility, etc. The company is also witnessing delays in decision making leading to delays in deal closures as some cautious stances are being taken by clients.

Investor interest: Client budget commentary, growth & margin guidance for FY24.

Kotak Securities

The brokerage expects Wipro to report a sequential revenue decline of 0.4 per cent in constant currency (CC) terms, at the lower end of the company’s 4QFY23 growth guidance of (0.6)-1.0% c/c qoq. This implies c/c YoY growth of 6.5%. It expects reasonable TCV led by mid-size cost-focus-led deals. ACV would be under pressure, noting a slowdown in discretionary programs. We expect revenue guidance of a decline of 1 per cent at the lower end of the band and growth of 1 per cent at the upper end of the band. 

"We expect investor focus on (1) the next steps in a turnaround which have hit a roadblock with a return to industry-lagging growth on an organic basis, (2) stability in the senior management team given several senior-level departures, (3) outlook for a consulting business (Capco and Rizing) which can be impacted due to pullback in discretionary spending, (4) outlook for tech spending in BFS and impact of exposure to impacted companies - SVB, Silvergate, Signature Bank and Credit Suisse, (5) cause for divergence in revenue growth and reported deal bookings, (6) positioning in cost take-out and vendor consolidation deals where Wipro can be vulnerable, (7) margin levers to meet aspirational margin level of 17%+ and  (8) capital allocation given the build-up of cash reserves," it said. 

JM Financial

The brokerage expects CC revenue growth of 0 per cent for Wipro’s IT Services, within its guided band of -0.6-1 per cent. Reported EBIT margin will see a decline of 40bps due to higher sub-contracting after a seasonal decline in 3Q and slower growth limiting the scope of pulling up utilisation etc. Subcontracting refers to the practice of bringing in an outside company or individual to perform specific parts of a contract or project. "However, we expect EBIT margins to be closer to 16 per cent, the new base margin level as indicated by the company in 3Q," the brokerage said in its earnings preview note. 

Stock price

Technology shares have remained underperformers during the March quarter. Wipro shares slipped 7 per cent during January-March 2023 as compared to a 3.5 per cent decline in the Sensex, BSE data show.