Wipro net profits rise 3% in Q3, dividend announced

Wipro reported a 14.7% rise in its IT services revenue for the third quarter of FY23, at ₹23,055.7 crore versus ₹20,093.6 crore during the same period last year, backed by 11 large deal signings of over $1 billion. The company’s double-digit rise in revenue resonates with sentiment in the industry as its peers TCS, Infosys and HCL Tech have also reported a rise in mid-high teens. HCL Tech had announced a dividend of ₹10 per share yesterday.

Wipro’s board has approved an interim dividend of ₹1 per share.

Like Infosys, financial services led the pack of industry verticals for Wipro, contributing nearly 35% to overall revenue, followed by consumer (18.9%) and health (12%). Akshara Bassi, research analyst – global cloud and servers, Counterpoint India, said that the deal momentum will “surely see some impact” in 2023 amid the recessionary environment.

Wipro’s orderbook rose 26% y-o-y to a record $4.3 billion in Q3FY22 with 61.7% comprising integrated digital, engineering and application services, while 38.3% coming from cloud infra, digital, risk enterprise and cybersecurity services.

Attrition eased for the fourth consecutive quarter, to 21.2% compared to 22.7% y-o-y, down 150 basis points. It was down 180 bps on a sequential basis. One basis point is one-hundredth of a percentage.

Wipro’s lowering attrition rate mirrors the downward trajectory of the trend in the IT sector, with peers like TCS, Infosys and HCL Tech all reporting a drop in attrition along with an expectation of further moderation.

“We believe Wipro will continue to see higher margins incrementally going ahead. However, headline numbers (revenue and EBIT) missed our expectations. Growth continues to be weak. The revenue growth guidance by the company for FY23 was below ours and the street’s expectations,” said Ruchi Mukhija, vice president – equities research at Elara Capital.

The company has further guided for the full-year IT services revenue growth to be in the range of 11.5-12% in constant currency terms. To be sure, Infosys, who reported its Q3 results on Thursday, upped its revenue growth guidance for FY23 while HCL Tech trimmed the upper end of its company, services and EBIT margin guidance for the financial year.

While 11.5-12% revenue growth translates into a –0.6%-1% growth rate in constant currency terms, Wipro’s managing director and chief executive officer, Thierry Delaporte, said he does not see the coming quarter to be soft and that the degrowth may be owed to seasonality and the gap between deals fructifying to revenue generation.

“Tech spending remains robust. Cloud transformation remains a priority among clients. Our total bookings were over $4.3 billion, led by solid large deal signings of over $1 billion. We improved our margins by 120 basis points and our attrition moderated for the fourth quarter in a row,” Delaporte said.

“We are continuing to gain market share as a result of deepening client relationships and higher win rates. Clients are turning to us to help them manage an evolving macro environment and balance their transformation goals with cost optimization. Our ability to deliver on client objectives regardless of where they are in their cloud journeys is positioning us favourably in a consolidating market.”

The company’s IT services EBIT (earnings before interest and taxes) rose 6.3% to ₹3,750.4 crore against ₹3,528.9 crore y-o-y but margin took a hit of 130 basis points y-o-y, at 16.3% for the quarter. Sequentially, EBIT margin was higher by 120 bps.

Commenting on the operational metrics, chief financial officer Jatin Dalal said, “Our operating margin is now at 16.3%, which is an expansion of 120 basis points from last quarter. This expansion of margin was after absorbing the investments we made in our people by way of salary increases, promotions and long-term incentives for our senior leadership. Margin growth was led by strong operational improvements and automation-led efficiencies. We generated strong operating cash flows at 143% of our net income for the quarter and our EPS increased by 14.6% quarter-over-quarter.”

Among markets, the American market contributed a little over 60% to overall revenue, followed by Europe (28.8%) and the Asia Pacific Middle East and Africa (APMEA) markets, at 11%.

Delaporte also said that clients continue to see tech as a driver of transformation. “We don’t believe there is any reason to expect a slowdown in spending going ahead. Having said that, while a slowdown is unlikely, clients may shift their focus towards types of deals where they see a faster return on their investments.”

Shares of Wipro ended Friday’s session at Rs 393.65 apiece, down 0.2% against a 0.86% rise in the BSE IT index.

Margin at 16.3% was the highlight for us, despite Q3 being a wage hike quarter. We believe Wipro will continue to see higher margins incrementally going ahead. However, headline numbers (revenue and EBIT) missed our expectations. Growth continues to be weak. The revenue growth guidance by the company for FY23 was below our and street’s expectations, said Ruchi Mukhija, vice president – equities research at Elara Capital. 

“The lowering attrition rate of 21.3% was in-line with our expectations. This was also a quarter where we had expected hiring to come down,” Mukhija added.