Wipro Q2 result: Analysts to look for signs of growth momentum

Written by P P Thimmaya | Bangalore | Updated: Oct 21 2013, 16:00pm hrs
WiproFor the second quarter, Wipro is unlikely to see major improvement in its operating profit margins.
Indias third-largest IT services exporter Wipro is set to announce its second quarter result for FY14 on Tuesday. The result is expected to be in line with market expectations but analysts would also watch out for signs of whether the company is on the path of a sustained revenue growth after an indifferent performance over the last two years. Wipro has guided for 2-4% revenue growth for the second quarter of FY14 and analysts from various brokerage houses expect the IT major to outperform the lower end of the guidance.

However, it remains to seen how the company performance vis-a-vis its peers, namely Tata Consultancy Services Ltd (TCS), Infosys and HCL Technologies, which all grew 3.5% and above. JPMorgan said in its report: Wipro IT services US dollar revenue growth is likely to remain relatively healthy at 2.3% quarter-on-quarter (q-o-q) while constant currency growth is expected to be 3% q-o-q.

CLSA in its preview said, Revenue should be at lower-end of peer comparables after sustained under performance through much of last two year years.

The second quarter was an upbeat performance for Indian IT boosted by the recovery in the US and rupee depreciation. The peers of Wipro were upbeat on the future growth potential with its cross-town rival Infosys posting two consecutive quarters of above average growth.

Now it remains to be seen whether Wipro is firmly on the recovery path. JPMorgan said, We agree that one step forward, two steps back seems to be the story of the Wipro turnaround so far, but we believe the company has taken the right steps to bring structural change in the organisation. We think that there are no half-measures undertaken in the restructuring story with many of the leakages getting plugged and cobwebs being removed.

Kotak Institutional Securities said, Absolute growth acceleration notwithstanding, Wipro will likely lag behind its peers again in 2QFY14. The company has not been able to stem loss in core areas of market leadership.

For the second quarter, Wipro is unlikely to see major improvement in its operating profit margins despite the benefit of a depreciated rupee due to the impact of wage hike. CLSA said, A few recent deal wins could drive some confidence in December 13 quarter revenue outlook. Rupee depreciation should more than balance full quarter impact of wage hikes in the quarter.

On the operating profit margins (OPM) front, it is unlikely that there would be any significant improvement in the quarter. Wipros average OPM at around 20% is the lowest among its peers. However, analysts are expecting that Wipro might provide a slightly upbeat guidance for the third quarter.