Wipro Q4 preview: IT services performance, FY24 guidance, buyback details among key factors to watch

Azim Premji-backed Wipro will take center stage on Thursday as the IT giant will be presenting its fourth-quarter earnings for FY23 later on the day. Wipro's stock price will perform accordingly. Apart from the earnings report, Wipro is also likely to announce details of the buyback plan. It will be keenly watched if there is any dividend stored in the cards just like its rivals.

Ahead of Q4 results, Wipro's stock price ended at ₹374.50 apiece down marginally on BSE compared to the previous session's print of ₹375.60 apiece. Wipro's market cap is over ₹2.05 lakh crore as of April 26.

Wipro's board members have commenced a two-day meeting on April 26 to consider and approve the buyback plan and Q4FY23 numbers.

This would be the first buyback of Wipro since January 2021. The last buyback that Wipro carried was ₹9,500 crore between December 29, 2020, to January 11, 2021. During this buyback, Wipro tendered 22,89,04,785 equity shares --- accounting for 96.38% of the total buyback size --- aggregating to ₹9,156 crore.

Although Wipro has not hinted towards any dividend announcement, its peers like TCS, Infosys, and HCL Tech declared dividends from their profits earlier this month. Hence, whether a dividend announcement from Wipro is on the table is another key factor to watch out for on Thursday.

What to expect in Wipro's Q4 earnings?

In its preview note, ICICI Direct said, "Q4 is seasonally weak due to fewer working days and some furlough impact in January. 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. We bake in a 0.5% QoQ decline in revenues in CC for the quarter while we build in 100 bps cross-currency tailwinds for the quarter resulting in a +0.5% QoQ increase in dollar revenues for the quarter. Rupee revenues are expected to increase 0.5% QoQ for the company."

Further, the brokerage expects 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 stance is being taken by clients.

Hence, ICICI Direct has factored a revenue of ₹23,494.7 crore up by 12% YoY and 0.5% QoQ. EBITDA is seen at ₹4,619 crore up by 8.6% YoY but sequentially lower by 0.6%. Whereas PAT is estimated at ₹3,040.5 crore down by 4.9% YoY and 0.4% QoQ.

Furthermore, JM Financial expects Wipro's CC revenue growth flat in the case of IT services, which is seen to be within its guided band of -0.6-1%. Also, the reported EBIT margin is likely to see a decline of 40 bps due to a) higher sub-con after seasonal decline in 3Q; b) slower growth limiting the scope of pulling up utilisation etc. This brokerage expects EBIT margins to be closer to 16%, the new base margin level as indicated by the company in 3Q.

On the other hand, Axis Securities expect Wipro's revenue growth to be 2.6% QoQ aided by strong deal wins. It expects margins to improve slightly due to strong volume growth and strong executions.

Among other key monitorable are --- management commentary on new deal ramp-up. visibility going ahead. client budget commentary, growth, and margin guidance for FY24. 

Wipro's Q3FY23:

During December 2022 quarter, Wipro posted a consolidated net profit of ₹3,052.9 crore up by 2.8% QoQ and 15.24% YoY. Consolidated revenue came in at ₹23,229 crore rising by 3.06% QoQ and 14.35% YoY. In dollar terms, IT services segment revenue rose by 6.2% YoY to $2,803.5 million, while non-GAAP constant currency growth stood at 0.6% QoQ and 10.4% YoY. Also, the IT services operating margin for the quarter expanded by 120 bps QoQ to 16.3%.

Additionally, in Q3FY23, Wipro's total bookings rose by 26% YoY and large deal bookings surged by 69% YoY. Also, the company's attrition rate moderated for the fourth consecutive quarter in Q3 at 21.2%. However, Wipro reduced its workforce by 435 sequentially taking the total employees headcount to 258,744 as of December 31, 2022.

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