MOSL: WIPRO (Neutral)-4Q revenue in line, but near-term outlook grim
WIPRO: 4Q revenue in line, but near-term outlook grim
(WPRO IN, Mkt Cap USD19.4b, CMP INR287, TP INR300, 4% Upside, Neutral)
- In-line revenue; weak margins and guidance: WPRO's 4QFY18 CC revenue growth stood at 1.1% (est. of 1.5%) and USD revenue growth at 2.4% (in-line). Apart from that, the results largely disappointed. Adj. EBIT margin shrunk 120bp QoQ to 16%, missing our estimate of 17.3%. This was despite a 150bp QoQ improvement in utilization (ex. trainees), a 100bp uptick in fixed price contracts and an 80bp improvement in offshore proportion. PAT declined 3.6% QoQ to INR18.7b, below our estimate of INR21.6b, led by the margin miss. WPRO guided for 1QFY19 revenue of USD2,015-2,060m and CC growth of -2.2% to 0% QoQ v/s our estimate of +1.6%.
- Multiple near-term pain points: Multiple factors feed into the weak guidance for 1QFY19: [1] Bankruptcy in the Communications client, where bulk of the revenue impact is in 1Q. [2] Weak seasonality in the India/Middle East business. [3] Renewed headwinds on the HPS platform. [4] Seasonality in the run-the-business BFSI portfolio, where productivity benefits to clients get triggered during 1Q. Situation on profitability appears equally bleak, with headwinds in the near term from: [1] weak revenue trajectory, [2] continued profitability issues in the India/ME business and [3] wage hikes effective June, the impact of which will be staggered over 1Q and 2Q.
- Hopes pinned beyond 1Q: WPRO cited that the order wins in 4Q were one of the highest ever, and that should drive revenue revival beyond the bankruptcy and seasonal issues of the first quarter. It also expects margins to expand every quarter, and revenue traction from 2QFY19 will be amongst the key levers to a revival of profitability.
Wipro is an information technology group based in India. Co. is engaged in the provision of information technology services. Co. is active as a global IT services company that provides a range of IT services, software solutions, IT consulting, business process outsourcing, or BPO, services and research and development services in the areas of hardware and software design to companies worldwide. Co. also provides outsourced research and development, infrastructure outsourcing and business consulting services. Co.operations are organized along two business segments: IT Services and IT Products.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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