Earnings Preview: Wipro sales growth may remain muted

Market analysts are cautious as top IT companies report their earnings for the June 2011 quarter. While Infosys results disappointed the Street, TCS racked up a ‘Meets Expectations’ grade. The focus has now shifted to 20 July, the day Wipro is expected to announce its results.

[caption id=“attachment_43164” align=“alignleft” width=“380” caption=“The muted growth in revenue is mostly in line with Wipro’s guidance of -0.4% to 1.5% offered in the last quarter. Punit Paranjpe/Reuters”]  [/caption]

The market is expecting Wipro, India’s third-largest IT services export house, to clock a muted 1% growth in net sales and a 1.2% rise in earnings in Wipro IT Services for the June 2011 quarter compared to the March 2011 quarter. Hence, sales from Wipro IT Services could be around Rs 63,502 crore and operating profit Rs 14,040 crore, said Credit Suisse.

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The muted growth in revenue is mostly in line with Wipro’s guidance of -0.4% to 1.5% offered in the last quarter. While management restructuring could have led to a delay in some of their projects, its exposure to the telecom vertical is also one of the reasons for the drag in sales, said Shashi Bhushan from Prabhudas Lilladher (PL).

Analysts from PINC and PL expect the company’s IT services operating margins to decline by 100-150 basis points to around 20-21%. The contraction in margins is mostly on account of the 12-15% wage hike undertaken by the company for the June 2011 quarter.

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While Wipro’s revenue growth lagged that of its peers in fiscal 2011, experts expect the company to continue to trail peers and pick up only after the March 2012 quarter.

Other key results this week:

HDFC Bank: HDFC Bank will report June quarter earnings on Tuesday. The Street is expecting HDFC Bank to report a net interest income of Rs 2,140 crore, a growth of 23% over the previous year. The bank’s net profit is expected to grow to Rs 812 crore, gaining 30%. The bank usually reports one the highest net interest margins in the banking sector (over 4%). Analysts expect a marginal fall in the NIM, a key metric used to measure bank performance. This is the difference between cost of lending and cost of funds for banks.

Dr Reddy’s Laboratories (Wednesday): DRL is expected to report a 19% growth in revenue at Rs 2,000 crore and about 50% growth in net profit at Rs 314 crore. This is largely on the back of some milestone payments. The share price is already up 3.4% over the past one week while the BSE Sensex fell 1.6%. The Street is expected to watch growth in revenue and the increase in interest costs, following the bonus debenture issue worth Rs 520 crore to shareholders.

Cadila (Tuesday): The Gujarat-based generic drug company is expected to report a net profit of Rs 211 crore over revenue of Rs 1,300 crore for June quarter 2011. The net profit is expected to grow 9.4% and the revenue 23% over June 2010. The Street is expected to watch the revenue growth in European sales as there was disappointment due to an underperformance in the year ended March 2011.