Indian IT services company Wipro is gearing up to announce its Q2 FY 2023-24 financial results this Wednesday. These results are receiving significant attention in light of muted performances from major players in the IT industry, such as TCS, Infosys, and HCLTech, during the recently concluded September quarter. Analysts are anticipating a decline in Wipro’s sequential revenue for Q2 FY 24 but expect improvements in utilization.
Revenue Trends
Expectations from various financial analysts suggest a decline in Wipro’s revenue for Q2. This decline is primarily attributed to the ongoing economic slowdown and the reduction in discretionary IT spending by clients.
Analysts at IIFL Securities predict another quarter of sequential decline, projecting a 1% quarter-on-quarter revenue decline in constant currency (CC) for Q2, aligning closely with the lower end of the company’s projected range.
Similar viewpoints are echoed by Nirmal Bang, which also foresees a cross-currency headwind of approximately 65 basis points in Q2 FY 24.
Nirmal Bang’s report anticipates (-)1% CC quarter-on-quarter revenue growth in Q2 FY24, compared to the (-)2% to 1% CC growth guidance. The report further anticipates a cross-currency headwind of 65 basis points and expects the company to provide a (-)2% to 1% quarter-on-quarter growth guidance for 3QFY24.
Deal Wins
Although Wipro did not announce any significant deals in Q2 FY 24, analysts anticipate that the Total Contract Value (TCV), representing the lifetime value of a contract, will remain above $3 billion.
“In terms of TCV, Wipro has consistently delivered $3 billion or more for the last three consecutive quarters, and we expect TCV to remain above $3 billion, even without any large deal announcements this quarter,” notes analysts at Nirmal Bang.
KR Chowksey’s analysts anticipate Wipro to announce robust deal wins in terms of quantity and size for Q2, despite the macroeconomic challenges. This is attributed to the company’s strong execution capabilities and continued investments from clients in their transformation efforts.
Employee Recruitment and Utilization
In light of the tepid growth figures, industry analysts foresee Wipro scaling back its hiring plans, especially considering that the company did not set a hiring target for FY 2023-24 at the beginning of the year. Attrition rates are also expected to stabilize.
The moderation in attrition, coupled with a reduction in hiring, is projected to lead to improved utilization and a reduction in the size of the bench. Analysts explain that this will contribute positively to the company’s operational margins.
As KR Chowksey’s report highlights, these developments are expected to provide tailwinds to margins, including enhanced utilization, better management of fixed costs, and a greater emphasis on automation.
Nirmal Bang adds to this by noting, “There will be an increase in utilization rates, operational efficiency coming into play, and a reduction in fixed costs.”