Wipro, India’s third-largest information technology (IT) services firm, may surprise the streets with poor profit and organic revenue growth numbers for the fourth quarter of FY17.
The Bengaluru-based company, which is chasing a target of $15 billion revenue and 23 per cent operating margin by 2020, may see up to 15 per cent decline in net profit on year-on-year basis due to decline in other income and Rupee appreciation, say market analysts.
While its cross-town rival Infosys has guided for 6.5-8.5 growth in FY18 despite stable number in Q4, brokerage firms say Wipro is expected to guide between 1 and 2.5 per cent growth for the April-June quarter of the current financial year on the back of flattish organic revenue growth.
The company witnessed sluggish growth in second and third quarters of the last financial year as it faced a decline in traditional business with faster growth in services through digital technologies such as cloud.
Unlike its rivals like TCS and Infosys, Wipro has been aggressive in stepping up digital technology skills and strengthening talent pool through big-size acquisition like Appirio, HealthPlan Services.
While the industry will keenly watch its commentary on growth strategies set by Chief Executive Officer Abidali Neemuchwala to meet the $15 billion target, analysts expect Wipro management’s clarification on recent news of layoffs.
At least four brokerage firms have forecast a sharp decline in net profit in Q4 of last financial year. The company is, however, expected to report stable number on a quarterly basis owing to revenue realisation from Appirio. “Wipro should be helped by full-quarter revenue from Appirio acquisition,” said Gautam Duggad, head of research at Motilal Oswal brokerage firm.
Here are five things to watch out for:
Measures to boost growth
While the company’s revenue growth for Q4 is likely to remain flat or may see a marginal increase, it will be important to note its guidance for the first quarter of FY18. Brokerage firms have forecast a quarterly growth guidance between 1 to 2.5 per cent in constant currency terms on the back of anticipated challenges in the healthcare sector in the US.
“Healthcare exposure will hurt Wipro and we expect guidance of 1.5 to 2.5 per cent QoQ in CC terms for the first quarter of FY18,” said Duggad. Equity research firm Systematix forecasts 1 to 2 per cent growth guidance.
Road to $15 billion target
The industry will keenly watch the company’s commentary on the $15 billion revenue target by 2020 as IT services sector see fresh challenges due to technology shift and likely stricter visa regime in the US, the largest software service export market. Emkay Securities says “progress on the six key themes outlined by the Neemuchwala in April last year” will be important to look out for.
Margin expectation
Wipro’s IT services operating margin is estimated by Emkay to drop by 40 basis points at 17.8 per cent on account of consolidation of Appirio and Indian Rupee appreciation during the January-march quarter. One should note the company’s outlook for operating margin for the first quarter of the current financial year considering the strong rupee.
Appirio growth
The $500 million acquisition of US’s cloud-based service provider Appirio was considered to be a game changer for the IT firm. With Appirio expected to strengthen its cloud-based delivery and contribute to revenue on immediate basis, this should define Wipro’s digital business growth going forward.
“Appirio’s acquisition was closed on November 23 and only partially consolidated for the third quarter of FY17. Hence, the last quarter would have the full impact of Appirio consolidation,” said Madhu Babu, IT analyst at brokerage firm Prabhudas Lilladher.
Commentary on layoffs and hiring
There have been reports on the company’s plans to sack hundreds of people due to automation of repeatable works in various projects. Wipro has, however, said any separation would be part of a rigorous appraisal process without giving specific numbers. Management’s commentary on layoffs and hiring plans will be crucial as the industry foresees significant job losses.
(*Roughly calculated from Rs Billion to Rs Crore figure based on % of change provided by the brokerage)