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Performance exceeds low expectations; sees some green shoots

Wipro’s operating performance in Q3 exceeded low expectations. IT Services revenue declined 1.7% (CC) QoQ, near the upper end of Company guidance. EBITM declined by only 10bps QoQ despite headwinds from the wage hike and continued revenue drop, partly offset by multiple initiatives, including exit from the low-margin business, realizing savings from pyramid and FPP productivity, and reducing discretionary spend. Wipro noted total deal bookings of USD3.8bn, in line with that in the last couple of quarters (book-to-bill of 1.4x; 14 new large-deals with large-deal TCV of USD0.9bn). Wipro is starting to see early signs growth reverting in Consulting, with the Capco business having seen double-digit QoQ growth in order bookings, possibly raising hope for growth normalization in FY25. Wipro has guided to -1.5% to 0.5% QoQ CC revenue growth in IT Services for Q4, with the mid-point of its guidance lower than our estimate by 50bps. We cut FY24E-26E EPS by 0.5%-2.2%, factoring-in the Q3 performance; retain ADD, with unchanged TP of Rs500/sh, at 19x Dec-25E EPS

Results Summary

Wipro’s IT services revenue fell 2.1% QoQ (down 1.7% CC) to USD2.66bn, above our estimate. IT Services EBITM decreased by 10bps QoQ to 16%, a tad better than our estimate of 15.8%. Overall EBITM was flat QoQ at 14.8%, lower than our estimate of 15.1%, impacted by Rs2.67bn of reconciling items (actions pertaining to right sizing the talent pool). Among verticals, five of the seven noted QoQ decline (CC), with Communications, Manufacturing, BFSI, Technology, and Consumer falling 8.6%, 6.1%, 4.3%, 1.9%, and 1.0% CC QoQ, respectively. Health and ENU grew 7.5% and 0.7% CC QoQ. Americas 1 was the only strategic business unit to log revenue growth, up 2% QoQ, while the rest—Americas 2 (-1.3%), Europe (-4.3%) and APMEA (-5.4%)—saw a fall. Net headcount reduced 1.8% QoQ to 240,234. Company has declared a dividend of Re1/share. What we liked: IT Services EBITM resilience, healthy deal intake, strong cash conversion (OCF/EBITDA at 114%), further moderation in TTM attrition to 14.2%. What we did not like: Decline in 5 of the 7 reported verticals, and in 3 of the 4 SBUs.

Earnings Call KTAs

i) The overall demand scenario remains guarded, with clients making conservative investments while looking for efficiencies, ROI, and better optimization of their existing investments. ii) The management notes green shoots in the consulting business, with Capco reporting double-digit QoQ growth in order booking – the highest in the last few quarters. iii) In Americas 1, sequential revenue growth was led by Healthcare (9% CC QoQ) and Wipro won 7 of the 14 large deals in this geography. iv) The management continues to see softness in Americas 2 (-1.3% CC QoQ), given higher exposure of BFSI and Energy & Utilities. Yet, there is strong momentum in the order book, wherein the TCV increased by 46% sequentially. v) Despite the persistent economic weakness in Europe, Wipro won 4 new large transformative deals in Q3, adding up to USD300mn to the TCV. vi) Revenue in APMEA fell 5.4% QoQ, mainly due to Company’s exit from lowmargin accounts and pivoting towards higher-margin business – reflected in the 240bps QoQ margin expansion. vii) AI is moving from the experimental stage to becoming vital, and sees that every large deal now has an AI component. Wipro has trained 210k employees in AI. viii) The management has suggested that the restructuring exercise is complete and that now it expects no more charges. It believes EBITM would remain in a narrow range with an upward bias, with acceleration in revenue growth.

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