In the company’s October-December quarter (Q3FY23), it fell well short of the street’s expectations due to macro uncertainty and geopolitical concerns. It was also below the first-quarter guidance of 3-5%.

“We expect revenue from our IT services business to be in the range of $2,811 billion to $2,853 billion. This implies a sequential growth of 0.5% to 2%,” Wipro said in its third-quarter outlook. Management said the consulting business had begun to slow, although cross-selling of services partially compensated for that.

Shares of the information technology (IT) company have fallen below the previous low of Rs 384.60 hit on September 26, 2022. The stock has lost 32% in the past six months, while the S&P BSE Sensex has lost 1.9%.
In the second quarter of fiscal 2023, Wipro reported a 9.2% year-on-year drop in its net profit to Rs 2,659 crore, compared with a profit of Rs 2,931 crore a year ago. Revenue was partially dragged down by higher employee expenses. Revenue for the quarter was Rs 22,540 crore, up 14.6% YoY; 4.69% QoQ. In dollar terms, revenue increased by 4.1% sequentially.

ICICI Securities noted that the company has not seen a slowdown in customer spending on technology, but is cautiously optimistic about the European market due to current geopolitical risks and energy constraints, in line with its third-quarter guidance and the normalised furloughs.

Strong growth in orders is expected to provide near-term revenue visibility. The brokerage said a key positive for the quarter was the slowdown in attrition for the second consecutive quarter, a different trend compared to TCS.

“We believe this, coupled with better pricing and the moderation of subcontractor costs (currently 12.9% of sales compared to 13.9% peak), is expected to have a positive impact on margins going forward. There were only 605 employees in the second quarter, and the strong numbers in previous quarters likely reflected a slowdown in Capco’s business and layoffs in the company’s European operations,” added ICICI Securities.

Meanwhile, Motilal Oswal Financial Services was disappointed by Wipro’s weak Q3FY23 revenue growth guidance. “Given the early-stage nature of the consulting business, we remain concerned about its vulnerability. Additionally, the low headcount in Q2FY23 adds to concerns about near-term growth. We factor in revenue CAGR in FY22-24 at 7.8%, which is the weakest among our Tier-1 IT services,” the brokerage said.

With Wipro reporting weak second-quarter earnings, we expect its FY23 organic growth to be one of the lowest among Tier-1 IT services companies, with margins below management’s mid-term guidance range of 17-17.5%. Also, its capital allocation has started to suffer due to increased investment in its advisory capabilities, which will also affect dividend payments in FY23.