Wipro second quarter performance preview: revenue fell 2% year-on-year, EBIT margin may be flat due to rising wages; focus on bonus issues

Wipro Q2 2024 results preview: India’s fourth largest information technology (IT) services company will hold a board meeting on Thursday, October 17, 2024, to review its earnings results for the July-September quarter of the financial year 2024-25 (Q2FY25). The Wipro Ltd board will consider the proposal to issue bonus shares at its board meeting later today.

Most D-Street analysts and domestic brokerages expect the leading IT major to report decent growth in net profit; however, margins and revenue are likely to be flat due to soft trading and the impact of one-month salary hike. Average brokerage forecasts suggest that Wipro’s net profit may grow by 9% to 12%, while revenue may decline by 2%.

Also read: Q2 Update: IT majors Infosys and Wipro to announce September quarter results on these dates, dividends brought forward

“The financial results will finally be approved by the board of directors on the evening of October 17, 2024. It was further learned that the trading window for the company’s securities transactions has been closed from September 16, 2024 until the close.” October 19, 2024 (including two days) of trading,” Wipro said in a regulatory filing to the stock exchanges.

Shares of Wipro have gained 15.85% in the past six months and nearly 29.46% in the past one year. The IT giant’s market capitalization is $2,78,444.16 Crores. On Wednesday, Wipro shares fell 0.13% to close at $Compared to the benchmark revision, the price on BSE was 532.25.

Wipro Q2 results: Here are the expectations of leading brokerages

1.Emkay Global Financial Services

The brokerage expects US dollar revenue in the IT services segment to grow 0.9% after factoring in 60 basis points of cross-currency tailwinds. On a CC basis, Wipro guided for revenue growth in the range of -1% to +1% QoQ.

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

“Despite the one-month impact of the pay hike, we expect IT Services EBIT margin to continue to be flat. Overall, EBITM will be flat sequentially. Q3 outlook and guidance, deal wins, attrition trends and Equity bonus issues are both key factors to watch,” said Emkay Global.

Demand: ↑ Demand comments did not improve as discretionary spending continues to face pressure. However, the brokerage expects some green shoots in the advisory business, in line with Capco’s strong performance in Q4FY24 and Q1FY25. The second quarter is expected to perform better than the first quarter.

“We expect revenue growth to be flat sequentially, within the guidance range of -1% to 1%. This will include increased telecom deals from Q1. Energy and utilities verticals are expected to be soft (large deals coming to an end) .

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Deal TCV: ↓ We saw a sequential decline in large deal announcements in Q2, with some coming from high tech and ER&D. Margins: ↓ Q2 will impact one month of wage increases. Therefore, we expect margins to decline 130 basis points sequentially. The company is expected to focus on fixed-price productivity levers,” ICICI Securities said.

The brokerage expects CC revenue growth to be flat compared to the previous quarter, with cross-currency tailwinds of around 30 basis points leading to 0.3% sequential growth in IT services dollar revenue. “We expect growth in BFSI, especially in the US, to be offset by continued weakness in the EU and Europe. We have yet to make meaningful contributions from the $500 million telecom deal in Q2.

We have instituted a one-month salary increase plan (effective September 1st). However, operating efficiencies and favorable currency rates are likely to help EBIT margins expand 35 basis points sequentially to 16.8%. We expect Wipro to post -1% to +1% QoQ cc growth in Q3FY25,” the brokerage said.

Also read: HCL Tech second quarter results: net profit increased 11% year-on-year, revenue guidance raised, dividend announced; 5 highlights

4.Momotar Oswal Financial Services

The brokerage expects second-quarter revenue to be flat due to macro impacts and continued weakness in communications, manufacturing and E&U. IT services margins are expected to fluctuate within a range, with the strategy of cutting back on low-margin businesses and low-potential customers progressing smoothly.

“The demand environment in the US is expected to improve, especially for BFS, with strong regional Capco activity. Healthcare is booming across payers, providers and life sciences, all of which are showing good traction.” Comments on the revival of the consulting business and the strategic initiatives of the new management will be key to monitor,” said Motilal Oswal.

The brokerage expects IT Services CC revenue growth to be flat sequentially, within its guidance range (CC -1% to +1% sequentially). “We expect BFSI and healthcare vertical to lead growth, but weakness in ENU may offset this. IT services margins are expected to remain stable in the second quarter,” analysts said.

Wipro’s profit levers (utilization, suction, SG&A, offshore) are largely optimized, which coupled with lackluster growth will make it difficult to expand margins. Q3 FY25 guidance, advisory outlook, deal win revenue conversion commentary, vertical outlook and margin outlook are key factors to watch. The brokerage expects Wipro’s CC growth to be +1% to +2% in the second quarter.

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