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Wipro Q4FY22 review - Disappointing guidance for Q1FY23; margin pressure ahead

ICICI Securities 02 May 2022

What's Buzzing:

The company has guided for 1-3% QoQ CC revenue growth in Q1FY23. EBIT margins for the next two to three quarters would be lower than guided range of 17-17.5%.

Context:

The company reported constant currency growth of 3.1% QoQ while rupee revenues grew 2.9% QoQ to Rs 20,553 crore. IT products business reported a decline of 32.2% QoQ to Rs 119.9 crore. Consolidated revenues grew 2.8% QoQ to Rs 20,755 crore. The growth in revenues in CC was led by BFSI (up 3.4% QoQ), consumer business unit (up 4.2% QoQ) and manufacturing (up 7.4%) while communications (down 1.2% QoQ), health (up by 0.3% QoQ) and energy (up 1.8% QoQ) were laggards. In terms of geographies, growth was led by America, which grew 4.1%, followed by Europe (growth of 2.3% QoQ) while RoW reported decline of 0.3% QoQ. The company reported EBIT margin decline of 60% QoQ to 17%. Wipro closed 37 large deals in FY22, resulting in TCV of US$2.3 billion.

Our Perspective:

The company’s revenue guidance of 1-3% looks lower compared to its last guided range of 2-4% run rate. Clients breaking down large deals into smaller deals could be one of the reasons. This guidance despite some large acquisitions like RISING, which has US$190 mn annual revenue run rate consolidating in FY23 suggests that organic growth could be slowing down. The company closed nine deals in Q4FY22, which was the lowest quarterly run rate in the last few quarters. Wipro also decided to increase frequency of promotions to 70% of its employees, suggesting attrition would be having a tail and would further put pressure on margins. It is also disappointing to see large TCV not translating to revenues for the coming quarters. The company guided for steady state margins to be in the range of 17-17.5% but margins for the next two to three quarters would be lower than the guided band due to supply side pressure. We estimate 11.8%, 10.2%, 11% CAGR growth in revenue, EBITDA, PAT, respectively, in FY22-24E. We trim down EBIT margin estimates by 86 bps, 107 bps in FY23E, FY24E, respectively, compared to our previous estimates.

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