Wipro Q3 Preview: Net profit, revenue lapse due to seasonal weakness, currency constraints
Wipro Limited is scheduled to announce its Q3 FY25 earnings on January 17, with analysts estimating a quarterly decline in revenue as well as net profit. Seasonal weakness in its consulting business, higher furloughs and cross currency constraints in Q3 are likely to weigh on Wipro’s earnings growth in constant currency (CC) terms.
A Moneycontrol poll of nine brokerages estimated Wipro’s revenue to decline 0.6 percent to Rs 22,176 crore in the October-December period, down from Rs 22,302 crore recorded in the previous quarter.
Analysts also expect consolidated net profit to fall 5 per cent quarter-on-quarter to Rs 3,040 crore. The IT major had reported a net profit of Rs 3,209 crore in the previous quarter.
Meanwhile, the company’s EBIT margin is expected to decline 40 basis points quarter-on-quarter to 16.1 percent as it suffers from cross currency headwinds, according to estimates. Among the brokerage firms surveyed, Emkay Institutional Equities sees the lowest decline in net profit at around 2 percent, while JM Financial predicts the sharpest drop of over 9 percent.
Client-specific issues in select verticals, along with seasonal weakness, more leave and the impact of salary hikes will impact Q3 earnings performance for Wipro.
Client-specific issues: Brokerage firm Elara Capital noted that Wipro’s client-specific issues, which impacted its growth in the banking and financial services (BFS) and healthcare verticals in Q2, impacted its growth in the banking and financial services (BFS) and healthcare verticals.
Elara Capital expects revenue to decline 0.9 percent in CC terms and 1.5 percent in dollar terms. For the third quarter, Wipro had guided to revenue growth of -2 to 0 percent in CC terms, and expectations are in the mid-range of that range.
Impact of salary hike: Brokerages in the market appear divided over the impact of salary hike on Wipro’s operating margins. Wipro rolled out salary hikes on September 1, the full impact of which will be felt in the third quarter.
While Elara expects Wipro’s EBIT margin to decline by 10 basis points, Kotak Institutional Equities believes margins will remain stable due to rupee depreciation and tight control on overall costs.
What to watch in the quarterly show?
Given that the market consensus suggests Wipro’s revenue growth to remain within its previously guided range, all eyes will be on the IT major’s topline guidance for the fourth quarter.
Analysts at HDFC Securities expect Wipro to provide revenue growth guidance of -1 to +1 per cent sequentially in CC terms in the fourth quarter. KIE and Emkay Global take a different opinion, expecting growth guidance for the third quarter to remain in the range of -0.5 to +1.5 percent.
Meanwhile, the focus will also remain on the commentary and tone of the discretionary demand environment and budget indicators for CY25.
Besides, investors will also be keen on details of the company’s capital allocation plans, especially as Wipro’s net cash has crossed Rs 30,000 crore as the new CEO focuses on organic growth.
