WIPRO SHOWS WHAT LIES AHEAD

about 2 months ago
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The first Q4FY20 earnings came in today evening – Wipro. And we have TCS tomorrow.

But today’s earnings of Wipro can give us an inkling about what to expect in the days ahead, at least when it comes to IT companies.

Its net profit for the quarter was down 4.5% (QoQ) at Rs.2345 crore on a flat 2% sequential rise in revenue at Rs.15,640 crore.

EBIT fell over 4% to Rs.2539 crore and margins shrunk by 100 bps to 16.1%.

More importantly, the company stated that IT Services Revenues for the quarter ended March 31, 2020 were negatively impacted by COVID-19 by approximately $14 -$16 million (0.7%-0.8% of revenues).

And then the most significant aspect which we all wanted to know - future guidance. Wipro stated that given the uncertainty on account of the virus, it had no visibility into the extent to which its operations will get disrupted and thus decided against providing revenue guidance for the quarter ending June 30, 2020. This is the trend which we will see in IT companies; no one knows when and how this crisis will end and in that context inability to give guidance makes sense.

The company cautioned, “The quarters ahead seem challenging and require a tremendous response on costs. We also anticipate our working capital to increase.”

Another trend which we will see – no dividends. Wipro had declared a Re.1 interim dividend in Jan and the company said today that, that will remain its final dividend. FY20 total dividend is thus at Re.1 on every Rs.2 face value share.

This was the performance when less than one month of Q4 was under lockdown; in Q1FY21, already April is written off and we are uncertain about May. Thus going ahead, the road will be extremely difficult.

We think that IT companies need not panic as much because being IT, work can be done online from home. But Wipro categorically said, “The estimated impact of COVID-19 on our business is due to service discontinuity caused by inability of our employees to work from home or contract cancellations/ ramp down attributed to the COVID-19 pandemic.”

Well, this is what we will be looking at in the next few days; lets see the impact on TCS.

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