Wipro’s struggle with growth will leave investors unimpressed

Mumbai: Wipro Ltd’s tribulations with growth continued in the June quarter with the company reporting a 1.3% fall in dollar revenues from the March quarter. In constant currency terms, revenues were up 5.9% from a year ago. This is in variance with the double digit revenue growth reported by peers TCS Ltd and Infosys Ltd.

Worse, while the peers are talking about sustainability or acceleration in growth momentum, Wipro is alluding to a flat performance. The guidance for the September quarter implies no growth at all at the lower end, and a mere 2% expansion from the quarter gone by at the upper end of the revenue projection. “2Q revenue growth guidance of 0-2% was at the lower end of the expected range of 0-2.5% despite the weaker base of Q1,” Jefferies India Pvt. Ltd said in a note.

Softness in banking financial services and insurance (BFSI), and delays in ramp-up of projects weighed on the revenue growth, point out analysts. The management is hopeful, that healthy deal pipeline will strengthen growth in rest of the fiscal year.

Analysts, however, remain skeptical. Especially, in the light of emerging weakness in key business verticals.

“Echoing commentary by other top tier IT services companies Wipro indicated weakness in capital markets and European banks within BFSI. While consumer business was weak in Q1 and was a key reason for the miss, management attributed it to completion of few large projects and deferral of new ones but expects a recovery in the vertical from 2Q onwards. The company also indicated weakness in healthcare and manufacturing,” Arya Sen, analyst at Jefferies said in a note.

Not surprisingly, the mixed commentary on the back of rupee appreciation and unimpressive revenue growth guidance is triggering reset in earnings expectations. Jefferies fears the subdued growth may weigh on profitability. Reported margins are down 60 basis points (bps) from the March quarter.

“We have revised downward our earnings estimates for FY2020E/FY2021E, factoring in lower-than-expected revenue growth in Q1FY2020 along with muted growth in Q2 revenue guidance and reset of dollar/rupee rate. With inconsistent execution along with macro uncertainties, underperformance in revenue growth among large peers is expected to continue for FY2020E,” Sharekhan Ltd said in a note.

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