Wipro Q3 results: Key questions answered on business outlook, deal wins, hiring trends and stock performance

The Q3 constant currency revenue growth of 3 percent was within the company's guided band of 2-4 percent. However, for the last few quarters, the company had been reporting results ahead of the guidance. For instance, in the last quarter, the company reported constant currency revenue growth of 8.1 percent ahead of its own guidance. Given this trend, the investors were expecting a beat, which did not take place this time.

In fact, all verticals (except energy and utilities) reported good growth in the third quarter. However, as expectations were running ahead of reality, the quarter appeared disappointing.

Here is the breakup (verticals QoQ growth in constant currency terms):

BFSI: +4.1 percent

Healthcare & life sciences: +3.8 percent

Energy & Utilities: -2.2 percent

Communications: +3.8 percent

Manufacturing: +2.7 percent

Technology: +0.9 percent

Consumer business unit: +5.2 percent

Q4 FY22 IT services revenue is expected to be in the range of US$ 2,692 million to US$ 2,745 million, translating into sequential growth of 2.0 percent-4.0 percent QoQ, in line with market expectations.

The management commentary has been strong. The management has indicated that the demand environment continues to be robust. Pipeline has healthy mix of medium and large deals across all business lines. The company is seeing a rapid expansion of small and medium deals in both existing accounts and new clients. Focus areas for the company are cloud transformation, engineering, data, digital transformation and security.

Deal wins have been impressive with the total contract value at $600 million vs $580 million QoQ. Annual contract value (ACV) of deal wins in 3QFY22 came in at $2.87 billion, 37 percent higher YoY. The deal pipeline remains very healthy and is at an all-time high owing to the company's strong participation in the deal market.

Wipro CEO Thierry Delaporte on Wednesday during the earnings call said that the company will shut down all the offices across the world for the next four weeks due to rising cases of COVID-19. The company will re-calibrate opening offices with the evolving situation.

Wipro is hiring 70 percent more freshers in FY22F vs FY21 and intends to further increase this in FY23F. Headcount addition has been in excess of 10000 for the last three quarters.

Kotak Securities said, “We are impressed with the progress on growth priorities, it is more than adequately priced in the current valuation of 25X FY2024E EPS. Valuations do not offer any margin of safety, necessary in turnaround stories." It has maintained 'Reduce' rating valuing the stock at 24X FY2024E EPS.

Nomura has cut the FY22-24F EPS by 0.4-0.9 percent due to the marginally lower revenue and margin estimates. It has reiterated 'Buy' rating, but cut the target price to Rs 850.

Citi has a 'Buy' call with the target cut to Rs 820 from Rs 830. It has lowered FY22-24 earnings by 1 percent each to factor in the weak Q3.

"Revenue miss on elevated sector expectations will likely lead to a pullback," it said.