Wipro: Q2-25 Earnings Call Highlights
Solid Q2 performance, meeting revenue & margin expectations and securing significant new bookings. Despite anticipated headwinds in Q3, Wipro remains confident in its long-term growth potential.
wipro.com | NSE: WIPRO
1. Key Takeaways
1.1 TLDR
Wipro delivered a solid Q2 performance, meeting revenue and margin expectations and securing significant new bookings.
The company's focus on strategic priorities, particularly large account growth, talent development, and AI integration, is showing promising results.
Despite anticipated headwinds in Q3, Wipro remains confident in its long-term growth potential.
Leadership is actively addressing challenges in specific sectors and exploring opportunities for future growth, including M&A and capital allocation adjustments.
1.2 Financial Performance:
Revenue: IT services revenue reached $2.66 billion, reflecting a sequential growth of 0.6% in constant currency, meeting expectations.
Operating Margin: Expanded to 16.8%, up 35 basis points QoQ and 71 basis points YoY, attributed to operational improvements.
Bookings: Total bookings reached $3.6 billion, an 8.4% increase QoQ, driven by 19 large deals worth $1.489 billion TCV.
Cash Flow: Strong operating cash flow of $510 million, representing 132.3% of net income, totalling nearly $1 billion in H1.
We are pleased to share that our operating margin for the quarter was at 16.8%, an expansion of 35 basis points quarter-on-quarter and 71 basis points year-on-year. This brings us one step closer to our earlier conveyed target band of 17% to 17.5%
1.3 Strategic Progress:
Large Account Growth: Focus on expanding large accounts yielded positive results:
Top account grew 4% sequentially.
Top 5 accounts grew 6.2% sequentially.
Top 10 accounts grew 3.7% sequentially.
Large Deal Wins:
Secured 19 large deals across diverse sectors, highlighting strength in:
Cost reduction and vendor consolidation.
Application modernisation and cloud operations.
Consulting-led and AI-powered solutions.
All I can say at this point in time is [the deal pipeline is] healthy, there is momentum around the deal pipeline and it's also secular across the four markets and across the six sectors that we operate in, which is for me a good news.
Talent Development:
Trained and certified over 44,000 employees on Advanced AI.
Implemented account-specific academies for upskilling employees.
Addressed employee feedback through initiatives like merit salary increases.
We believe all our employees should adopt an AI mindset, have the right skill set and use the right tool set in their work for our clients.
1.4 Future Outlook:
Q3 Guidance: Expecting a sequential revenue decline of -2% to 0% due to seasonal furloughs and fewer working days.
Margin Guidance: Maintaining a narrow margin band despite Q3 revenue softness.
Long-Term Growth: Confidence in long-term potential, driven by strategic priorities and focus on capturing AI opportunities.
Capital Allocation: Exploring revised capital allocation strategy, including potential buybacks.
Our Q3 revenue is expected to be affected by seasonal furloughs and fewer working days in this quarter. As a result, we are guiding for a sequential revenue growth of minus 2% to 0% in constant currency.
1.5 Operational Perfromance:
Market Performance:
Americas 1: Grew 1.2% sequentially, led by Healthcare, Technology, and Communications.
Americas 2: Grew 0.8% sequentially, driven by BFSI.
APMEA: Grew 0.3% sequentially, with Capco contributing significantly.
Europe: Declined 0.1% sequentially due to weak demand and client-specific issues.
Sector Performance:
BFSI: Continued strong performance with 2.7% sequential growth, led by Americas.
Technology and Communications: Grew 1.6% sequentially, fueled by large deal ramp-up.
Manufacturing: Declined 2% sequentially, with signs of an uptick in demand in the industrial segment.
Energy and Utilities: Declined 3.7% sequentially, but opportunities exist in vendor consolidation and cost takeout.
Our Q3 revenue is expected to be affected by seasonal furloughs and fewer working days in this quarter. As a result, we are guiding for a sequential revenue growth of minus 2% to 0% in constant currency.
Wipro Limited Q2 FY'25 Earnings Call FAQ
1. What were the key financial highlights for Wipro in Q2 FY'25?
IT Services revenue reached $2.66 billion, a sequential growth of 0.6%.
Operating margins expanded to 16.8%, a 35 basis point increase quarter-on-quarter and 71 basis points year-on-year.
Total bookings for the quarter stood at $3.6 billion, an 8.4% increase quarter-on-quarter.
The Capco business demonstrated continued traction, growing 3.2% quarter-on-quarter and 6.9% year-on-year.
2. What factors contributed to the margin expansion in Q2?
Margin expansion was driven by operational improvements, including improved utilization and offshoring. These improvements were achieved even after absorbing the impact of salary increases that were implemented effective September 1st. Other factors included G&A optimization and synergy benefits from the integration of acquired entities.
3. What is the revenue guidance for Q3 FY'25, and what are the key considerations?
The Q3 revenue guidance is projected to be in the range of $2.607 billion to $2.660 billion, representing a sequential growth of -2% to 0% in constant currency terms. This guidance takes into account anticipated headwinds from seasonal furloughs, a reduced number of working days, and some client-specific challenges in Europe.
4. What are Wipro's strategic priorities for growth?
Wipro has identified five key strategic priorities for growth:
Focus on growing large accounts in their four profitable markets and six priority sectors.
Secure large deals, leading with consulting and AI-powered solutions.
Develop and implement consulting-led and AI-powered industry solutions.
Build talent at scale, equipping employees with AI mindsets, skills, and tools.
Enhance client centricity, focusing on delivery innovation and a deep understanding of client needs.
5. What is Wipro doing to leverage AI and Generative AI for growth?
Wipro is actively investing in Generative AI and aims to become an AI-powered organization. Their approach to Generative AI includes:
AI-led projects in areas like software development and engineering.
Infusion of AI into managed services to enhance efficiency and customer experience.
Development of AI-powered solutions that are conceptualized with AI at their core.
6. What are the challenges and opportunities in the Manufacturing and Energy & Utilities sectors?
While these sectors are important for Wipro, they have faced challenges in recent quarters with growth lagging behind peers.
Manufacturing: Opportunities exist in areas like software-defined vehicles and SAP S/4HANA transformation.
Energy & Utilities: Potential for growth is seen in cost optimization and vendor consolidation deals, particularly in the energy sector.
Wipro is focused on securing new wins and reviving growth in these sectors.
7. How is Wipro approaching vendor consolidation opportunities?
Wipro sees vendor consolidation as a significant growth opportunity. They are actively pursuing deals that leverage their strengths in execution and consulting. A recent large deal win involved consolidating vendors for a client's end-to-end operations across infrastructure, applications, and processes.
8. How does Wipro plan to allocate capital going forward, particularly in light of recent tax changes related to buybacks?
Wipro is currently developing a revised capital allocation policy aligned with its strategic plan for the next 2-3 years. The company acknowledges the benefits of buybacks, even after recent tax changes, but will provide further details on their capital allocation approach following their January board meeting.
Source: Link to Earning Call Transcript
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