Wipro Q2 Results Review - Q3 Revenue Tad Soft; Margin Pressure Unlikely To Abate Much In H2: Nirmal Bang

Nirmal Bang Report

Wipro Ltd. reported Q2 FY23 QoQ constant currency IT services revenue growth at 4.1% (~3% in organic terms), which was at the higher end of the 2-5% guidance given and a tad above our estimate of 3.5%.

While this is strong, the margin expansion of 10 basis points was underwhelming and the sense we get is that in H2 FY23, both revenue growth and margins are going to come in weaker than our/street estimates despite optically strong total contract growth (which we believe is due to a low base in FY22).

Q3 FY23 revenue growth has been indicated at 0.5-2% QoQ in CC terms, which we believe is at least 100 bps lower than expected.

After large deal total contract of $1.1 billion booked in Q1 FY23 (large part of it net new), there was a significant drop in the number in Q2 FY23 at $725 million.

The weak Ebit margin expansion QoQ and hints that it will not materially pick up in Q3 (due to incremental two months of compensation increase) indicates that the 17-17.5% aspirational target may remain elusive even in FY24 considering the pressures we see on both demand as well as on the pricing front in that year.

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