3Q24 results and 4Q24F guidance are inline
- 3Q24 operating income of INR32.9bn (-1.4% q-o-q, -13% y-o-y) and revenue of INR222.1bn (-1.4% q-o-q, -4.4% y-o-y) met street estimates.
- The conversion of deals to revenue has been hindered by prolonged deal durations and delayed project starts.
- Guides 4Q24F revenue of INR218bn-INR223bn (-1.4% to +0.7% q-o-q growth), where the mid-point is inline with street estimates.
3Q24 operating income of INR32.9bn (-1.4% q-o-q, -13% y-o-y) and revenue of INR222.1bn (-1.4% q-o-q, -4.4% y-o-y) met street estimates. WPRO reported operating income of INR32.9bn (-1.4% q-o-q, -13% y-o-y) inline with street estimates of INR32.6bn. Operating margins in 3Q24 remained flat q-o-q at 14.8%. WPRO reported 3Q24 revenue of INR222.1bn (-1.4% q-o-q, -4.4% y-o-y) which also met street estimates. IT Services segment which contributes 99% to the revenue dropped q-o-q by 1.1% (down 3.9% y-o-y), meeting the upper end of guidance of INR216bn-INR221bn for 3Q24. The q-o-q drop in revenue was observed across Banking, Financial Services, Insurance, Manufacturing and Communications sectors in the US and Latin America. In 3Q24, Total bookings stood at US$3.8bn (+0.2% q-o-q, -13% y-o-y) while large deal Total Contract Value (TCV) dropped to US$0.9bn (-29% q-o-q, -7.1% y-o-y). WPRO’s total book to bill stood at 1.4x in 3Q24 similar to 2Q24. WPRO booked 14 US$30m and above in TCV deals in 3Q24 (14 in 2Q24). In a seasonally soft quarter, deal booking momentum remained strong where large deals recorded a 20% year-to-date (YTD) growth. Furthermore, WPRO highlighted that it is seeing early signs of a return to growth in consulting, as demonstrated by the double-digit growth in order bookings in WPRO’s Capco business. Meanwhile, total headcount sharply declined for the fifth quarter in a row, down by 4,473 employees q-o-q. Voluntary attrition has continued to moderate to 12.3% trailing 12-months (2Q24 at 15.5%).
4Q24F revenue guidance is inline with street, implying -1.4% to +0.7% q-o-q growth. WPRO guided revenue from IT services to be in the range of INR218-INR223bn for 4Q24F, which implies a -1.4% to +0.7% q-o-q (-5.7% to -3.8% y-o-y) growth, where the mid-range is inline with street estimates of INR222bn. For 4Q24F, WPRO expects margins to be flat, similar to recent quarters (average of 16% over the last five quarters). Nonetheless, a sluggish pace of decision-making, extended ramp-up cycles, and a downturn in discretionary spending might lead to a weak near-term outlook. The conversion of deals to revenue can be hindered by prolonged deal durations and delayed project starts. Furthermore, WPRO launched Wipro ai360, AI-first innovation ecosystem in 1Q24, and highlighted that they are investing US$1bn in AI over the next 3 years and plans to train its entire workforce on AI in the next 12 months. Under WPRO’s ai360 strategy, AI is now embedded across most of its existing solutions and client offerings and are deploying AI internally across all business and functional areas. However, WIPR possess higher risk due to high exposure to consultancy services which might underperform during uncertain environments.