Wipro Q4 results preview: Seasonal weakness will reflect in modest 1.5-2.5% sequential constant-currency (c/c) revenue growth of Tier-1 ITs. We expect a slightly soft but steady 10-11% growth for Indian IT in FY2017. We expect March quarter results and management commentary to lend comfort on Street’s expectations, which in our view are already moderated, realistic and achievable. We believe 1-2% lower growth in FY2017e is captured in the new valuation band—Indian IT stocks are down to 14-18X from 15-20X. The new valuation band implies that stocks are building 10-13% growth as against 11-15% earlier, for a period of 4-7 years. We note that there is potential for growth to pick up from current levels as Indian IT’s participation in digital increases.
We estimate c/c revenue growth of 3% (1.5% organic) around midpoint of its c/c growth guidance of 2-4% (organic c/c growth guidance of 0.5-2.5%) on Wipro. We expect 50 bps improvement in Ebit margin led by absence of costs pertaining to Chennai floods, benefits of rupee depreciation and some recovery in profitability of the IT products segment. We expect Wipro to guide 3.5-5.5% c/c revenue growth (1-3% organic c/c growth) for Q1FY17. We note that full quarter consolidation of cellent, Viteos and HPS acquisitions will aid revenues by about 2.5% in Q1. Street focus will be on (i) the new CEO’s priorities and progress on that front (ii) efficacy of measures taken to improve sales effectiveness, account mining and to defend shares in core areas of competence (iii) go-to-market strategy of digital business (iv) wins in consolidation deals in energy and BFSI verticals and (v) integration of recent acquisitions of Viteos, cellent AG and HPS. We have a REDUCE rating on Wipro with a target price of Rs 550.