Wipro Q2 results preview: Revenue to fall 2% YoY, EBIT margin likely to be stable on impact of salary hike; eye bonus problem

Wipro Q2 2024 Results Preview: India’s fourth largest information technology (IT) services company will hold its board meeting on Thursday, October 17, 2024, to consider its earnings results for the July-September quarter of FY2024- 25 (T2AF25). The board of directors of Wipro Ltd will consider a proposal for a bonus share issue at the next board meeting later today.

Most analysts at D-Street and national brokerages have estimated decent net profit growth for the IT major; however, margin and revenue are likely to remain stable due to softer agreements and the impact of the one-month salary increase. An average of brokerage estimates indicates that Wipro’s net profit is expected to increase between 9% and 12%, while revenue could fall by 2%.

Also read: Q2 update: IT giants Infosys, Wipro to announce September quarter results on these dates, dividends ahead

“The financial results would be finally approved by the Board of Directors on the night of October 17, 2024. It is also informed that the trading window for trading the company’s securities is closed from September 16, 2024, until to the close of trading hours on October 19, 2024 (both days inclusive),” Wipro said in a regulatory filing to stock exchanges.

Wipro shares have risen 15.85% in the last six months and almost 29.46% in the last one year. The IT giant commands a market capitalization of $$2,78,444.16 million. On Wednesday, Wipro shares closed down 0.13%, $$532.25 each on BSE against benchmark correction.

Wipro Q2 Results: Here’s What Top Brokers Expect

1.Emkay Global Financial Services

The brokerage expects revenue growth of 0.9% in dollar terms in the IT services segment, after factoring in cross-currency tailwinds of 60 basis points. Wipro guided revenue growth in the range of -1% to +1% quarter-on-quarter (QoQ) in terms of CC.

Also read: Wipro will consider issuing bonus shares; meeting to be held on October 17th, details here

“We expect IT services EBIT margins to remain stable sequentially despite the one-month impact from the salary increase. Overall, EBITM will remain stable on a quarterly basis. Outlook and guidance for Q3, business earnings, attrition trends and bonus share issuance are among the key items to watch,” said Emkay Global.

Demand: ↑ Comments on demand have not improved with continued pressure on discretionary spending. However, the brokerage expects some positive results in the consultancy – in line with Capco’s superior performance in Q4FY24, Q1FY25. The second quarter is estimated to perform better than the first quarter.

“We expect revenue growth to be stable in the quarter, within the guided range of -1 to 1 percent. This will include the ramp-up of the telecommunications business from the first quarter. The energy and utilities verticals are estimated to be weak (big deals coming to an end).

Also read: Six months in CEO’s shoes, Pallia discreetly scripting Wipro’s turnaround

Deal TCV: ↓ We see some decline in large deal announcements in Q2, with some high-tech and ER&D deals. Margin: ↓ The second quarter will have an impact on the salary increase of one month. Therefore, we expect a 130 bps decline in quarterly margin. The company is expected to focus on leveraging fixed-price productivity,” ICICI Securities said.

The brokerage expects cc revenue growth to be stable sequentially, cross-currency tailwind of approximately 30 bps should result in revenue growth of 0.3 percent QoQ in dollar terms for IT services. “We expect growth in BFSI (especially in the US) to be offset by sustained weakness in E&U. We did not build a significant contribution from the $500 million Telecom deal in Q2.

We built in a one-month salary increase (from September 1st). However, operational efficiencies and favorable currency will likely contribute to a 35 basis point sequential expansion in EBIT margin to 16.8 percent. We expect Wipro to guide for -1 to +1 percent QoQ growth in 3QFY25,” the brokerage said.

Also read: HCL Tech Q2 Results: Net profit increased 11% YoY with increase in revenue guidance, dividends declared; 5 main highlights

4.Motilal Oswal Financial Services

The brokerage expects stable revenue in Q2 due to macro impact and continued weakness in Communications, Manufacturing and E&U. IT services margin is expected to be limited and the strategy to reduce low margin businesses and low potential accounts is progressing well.

“We expect the demand environment to improve in the US, especially in BFS, with significant regional activity from Capco. Healthcare is gaining momentum across the payer, provider and life sciences sectors, all showing good traction. Comments on the recovery in the consultancy business and strategic initiatives of the new management will be the main monitors”, said Motilal Oswal.

The brokerage expects IT services CC revenue growth to be stable in the quarter, within its guided range (-1 to +1 percent QoQ in CC). “We expect the BFSI and healthcare verticals to lead the growth, which is likely to be offset by weakness in ENU. IT services margins are expected to remain stable in the second quarter,” the analysts said.

Wipro’s margin levers (utilization, suck, SG&A, offshore) are largely optimised, which coupled with subdued growth will make it difficult to expand margins. Q3 FY25 guidance, advisory outlook, commentary on business earnings to revenue conversion, vertical outlook and margin outlook are among the key items to watch. The brokerage expects Wipro to guide CC growth rate of +1 percent to +2 percent for the second quarter.

Disclaimer: The opinions and recommendations provided in this analysis are those of individual analysts or brokerage firms, not Mint. We strongly advise investors to consult certified experts before making any investment decisions, as market conditions can change quickly and individual circumstances may vary.