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Wipro reports disappointing performance; TCV trend healthy

ICICI Securities 13 Jan 2022

What’s buzzing:

Wipro reported weak numbers for Q3FY22. Revenue growth was in the middle of guided range while IT services margin declined 60 bps QoQ due to supply side pressures. TCV was up 37% YoY in 9MFY22.

Context:

IT services revenues increased 3% QoQ in constant currency (CC) while dollar revenues were up 2.3% QoQ to US$2,639 mn (vs. our expectation of 4% QoQ growth in CC). Rupee revenues were at Rs 19,974 crore, up 3.1% QoQ (vs. our expectation of 3.0% QoQ). The growth in revenues was led by BFSI (up 4.1% QoQ), Communication (3.8% QoQ) and Consumer Business Unit (up 5.2% QoQ) while Energy was a laggard where it reported 2.2% QoQ decline. The IT service EBIT margin declined 60 bps QoQ to 17.1% (vs. our estimate of 10 bps QoQ decline) amid supply side pressures. Wipro guided that its Q4FY22E IT services revenues would be in the range of US$2,692-2,745 million, which translates to 2.0-4.0% QoQ growth.

Our Perspective:

The company’s operating performance was disappointing as revenues as well as margins came in below our expectations. The supply side challenges are expected to continue for a couple of quarters, which would put pressure on margins. The demand outlook continues to be strong as clients continue to spend on new technologies. TCV growth is the only saviour, which provides the near term visibility. We estimate revenue, EBITDA, PAT growth of 22.8%, 18.6%, 18.5% CAGR, respectively, over FY21-23E.

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