wipro share price: Despite soaring staff costs & looming growth risks, can Wipro turn D-St pessimists to optimists?

The sharp rise in attrition necessitated companies to step up hiring and offer hikes to retain existing employees.

While the trend reversed for a few companies in the September quarter,

saw no respite on the cost front.

The software major’s employee cost in the last quarter surged nearly 9% sequentially, while sales grew by 4.7%. For six straight quarters, Wipro has seen employee costs outgrow sales.

The Bengaluru-based software major offered quarterly promotions in July, and rolled out wage hikes in September.

This surge in cost added to the pressure on the profitability, as Wipro’s margin improvement was the least among peers in Q2.

Wipro’s earnings before interest and taxes (EBIT) margin improved by only 16 basis points sequentially in Q2, whereas peers , , and reported 93-150 bps expansion in margin.

The management said that margins in the current quarter will see the impact of two additional months of salary increment, though it expects it to be partially offset by likely improvement of utilisation and price realisation.

Attrition has been a key factor contributing to the rise in staff cost and hurting margin.

Wipro had net added 15,446 employees in Q1, but this number reduced significantly to just 605 in Q2. The net additions were the lowest among peers.

Like peers, Wipro too, saw attrition moderating in the previous quarter, but a meaningful fall is still far fetched.

“Attrition levels for the industry are expected to moderate in October-March, but it is a wait-and-watch as of now, and one needs to see how it pans out,” said an analyst at a domestic brokerage.

Most analysts believe that the pace of improvement in the profitability for Wipro will be the slowest in the frontline pack.

OTHER HEADWINDS

Besides staff cost and attrition, the other factor clouding the outlook for margin recovery is the expected slowdown in the US and Europe.

Wipro’s chief executive Thierry Delaporte said that macroeconomic uncertainty has resulted in a delay in decision-making.

While Wipro was still fairly confident of achieving double digit revenue growth in 2022-23 (April-March), it wasn’t so on the margin front.

The management shied away from giving any timeline on the margin returning to the medium-term target range of 17-17.5%, which remains an “irritant”, said Emkay Global Financial Services in its report.

“Lack of clarity on margin recovery is expected to weigh on valuation, in our view,” the brokerage said.

According to

Securities, Wipro is likely to see a sharp 230 bps fall in EBIT margin in FY23, which inhibits the management’s ability to focus on growth.

“We expect Wipro to stay meaningfully behind its 17-17.5% medium term IT services’ EBIT margin guidance over the next two years,” the brokerage said in a note.

So, there are battles to be fought to achieve the desired growth, and the victory for Wipro hinges upon its game plan.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)