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Wipro Q3 preview: Revenue likely to meet growth guidance; Q4 forecast, management restructuring eyed –

Software services provider Wipro is expected to report revenue growth within its given guidance for the quarter ended December 2020 driven by large deals wins.

The company after its Q2 earnings estimated to report constant currency revenue growth in the range of 1.5-3.5 percent for Q3 FY21.

“We forecast sequential constant currency revenue growth of 3.2 percent driven by the ramp-up of large deals such as E.ON, Marelli and John Lewis. The quarter also includes a marginal contribution from full quarter consolidation of 4C acquisition,” said Kotak Institutional Equities which sees 3.6 percent sequential growth in dollar revenue.

The quarter may not include any revenues from the Eximius Design acquisition that was announced in October but is yet to be completed, the brokerage added.

Kotak expects Wipro to guide for 1-3 percent sequential revenue growth for March 2021 quarter, while Prabhudas Lilladher sees the same to be in the range of 2-4 percent for the March quarter. Note that this does not include any contribution from the recently announced Metro AG large deal.

The earnings before interest and tax (EBIT) margin is expected to be stable for December quarter despite the promotion of 80 percent of employees, while the profit growth quarter-on-quarter could be more than 4 percent.

“We expect Wipro margins to remain stable, Wipro announced promotions covering 80 percent of employees w.e.f. December 1, but excluded senior level resources. But as no other costs are increasing we are not building margin reduction,” said Prabhudas Lilladher.

The new organisation structure under new MD & CEO Thierry Delaporte appointed last year is keenly watched by the street.

“Wipro will roll out a new organization structure (w.e.f. January 1, 2021) with the objective of reducing internal layers and increase organizational agility and speed of response to customers. The organisational structure is also a polarizing one, something which will continue to be at the centre of focus,” said Kotak.

“A few senior people have exited the organization; focus will shift to replacements and the profile of new recruitments at the senior leadership and global account executives level,” the brokerage added.

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Wipro shares rallied 23.2 percent during December quarter and 57.1 percent in the calendar year 2020, outperforming Nifty IT index that gained 21.55 percent and 55 percent.

Key things to watch out for would be Q4 guidance; execution of past large deals; the outcome of annual budgeting cycle of clients and its implications for Wipro; large deal pipeline and pace of decision making; demand commentaries of key verticals; and exits and new hires resulting from the change in the organization structure.