Wipro share price fell by six per cent on Thursday, after its Q4 results. The IT major had, on Wednesday, posted 5.3 per cent sequential fall in its net profit to Rs 2,345 crore, compared to the net profit of Rs 2,493 crore posted the same period last year.
The company has also not given a revenue forecast due to the prevailing uncertainty posed by the COVID-19 pandemic. Experts feel that though a bleak outlook on demand, pricing and working capital was on expected lines for Wipro, the company also faces idiosyncratic risks like CEO transition and execution challenges in the future.
Wipro has already deferred annual wage increments and promotions for FY 21, but said it would honour its campus placements.
“In line with our expectations, the company has temporarily discontinued its practice of providing revenue growth guidance for the subsequent quarter. At the same time, the management has also hinted at sequential revenue decline. Currently, Wipro does not have the visibility to the extent which COVID-19 will disrupt its operations, both in volume and pricing terms,” observed a report from Motilal Oswal Institutional Equities.
The report further noted that Wipro's management has highlighted the need for tremendous response on costs, and anticipates pricing pressure and stretch in working capital cycles. At the same time, the company expects heavy disruption in the near term in verticals such as retail, hospitality, travel, energy and automotive. In the BFSI (Banking Finance and Insurance) segment, the management expects near-zero interest rates to impact spending over the medium term.
Firms such as HDFC Securities have reduced the rating for Wipro, based on lower than expected revenue and margin performance. “COVID-19 related global slowdown will lead to cut in discretionary spending, pricing discounts and postponement of large deals wins. Challenges in the BFSI segment on a medium term basis, stress in manufacturing, especially automotive and the energy verticals, will offset the improving outlook in healthcare and communication. While growth concerns remain due to the COVID-19-led disruption, there is limited scope for margin expansion for the company. New opportunity will emerge for the company with increased cloud adoption, automation and workplace modernisation,” remarked Amit Chandra, assistant vice president at HDFC Securities.
A report on Wipro by HDFC Securities pointed out that the BFSI segment has slowed down for the IT major due to challenges in the US capital market and COVID-19 disruption. According to the report, the consumer growth for Wipro was also muted due to the lower deals in the e-commerce sub-vertical. The report observed that the BPO segment degrew for Wipro as the company found it difficult to manage the work from home option. Manufacturing too degrew for the quarter, impacted by the automotive segment. Interestingly, the HDFC Securities report noted that the performance of top five clients of Wipro had been muted for the past four quarters, largely impacted by the BFSI segment.
Some experts observed that they were surprised by the sequential decline in the company's headcount that was down by 4,400 people although the company suggested that this action was not driven by the possible impact of COVID-19.
“We have noted that several global companies, including IT or ITES companies, have withdrawn or suspended their outlook in recent weeks given significant uncertainty due to the COVID-19 crisis. During the investor call, Wipro's management pointed out that it was already seeing increased instances of cuts in their clients' IT spending, deferrals and delays on discretionary spending along with demands for price discounts, more favorable payment terms and restructuring of existing deal terms. The company suggested that it aims to offset the likely revenue or margin pressures through aggressive cost rationalisation. Apparently the company has already deferred annual wage increments and promotions for FY21 though it will honour its campus offers (with possible delays in onboarding),” observed Manik Taneja, senior research analyst at Emkay Global Financial Services Ltd.