IT services firm Wipro's revenue is likely to increase by about 4.5 per cent in FY26, mainly driven by favourable sectoral trends and recovery in discretionary customer spending, according to global rating agency Fitch.
The agency retained Wipro's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'A-' with a stable outlook.
"Fitch forecasts Wipro's revenue to increase by around 4.5 per cent in FY26 compared with a slight decline in FY25.
"We believe that the growth will be supported by a recovery in discretionary customer IT spending, particularly in the US, where customers will benefit from declining interest rates.
"We expect customers in Europe to remain under pressure in a weaker economic environment and to focus on cost optimisation and efficiency improvement.
"There are early signs of revenue recovery in 3Q FY25 with IT services revenue rising by 0.6 per cent year-on-year," the agency said in a statement.
Wipro will be able to maintain its solid market position as India's fourth-largest IT services company by revenue, it added.
The long-term growth prospects for the IT services industry are expected to be favourable, driven by customer spending on digital transformation, cloud computing and generative AI (GenAI), Fitch said, adding that revenue share from GenAI may rise as customers solve problems relating to digital infrastructure, legal issues and cybersecurity concerns.
To integrate AI across its operations, Wipro is ensuring that its workforce is equipped to leverage AI effectively, with about 50,000 out of its 237,732 employees having advanced certifications in AI.
Further, the rating agency SAID the Bengaluru-based firm's EBITDA margin will improve by around 20 per cent in FY25 and FY26.
"We expect the EBITDA margin will remain around this level as the company is likely to focus on revenue growth rather than maximising profitability.
"Wipro has improved profitability by cutting general and administrative expenses and increasing its use of offshoring.
"In addition, a fall in the attrition rate has helped to lower hiring and training costs and moderate wage growth pressure," the agency said.
Fitch said it expects Wipro to focus on "tuck-in acquisitions rather than large ones that tend to be more margin dilutive".
It expressed confidence that Wipro will pursue "opportunistic acquisitions", where it can gain exposure to a new geography or capability.
Wipro recently acquired Applied Value Technologies, a global provider of corporate application services and support, for $40 million.
The deal is expected to be finalised by the end of March 2025.
Wipro has maintained the same credit rating since 2021. A positive rating action or upgrade is unlikely in the medium term, Fitch said, except if the company profile significantly improves -- for example, increased market share and expansion in pre-dividend FCF (free cash flow) while maintaining EBITDA leverage below 1.3 times.
"The company generates substantial FCF and holds a large cash balance that is more than sufficient to cover short-term debt maturities of Rs 103 billion in December-end 2024.
"We expect Wipro will generate pre-dividend FCF of around Rs 160 billion in FY26, which will cover shareholder returns and acquisition spend," it said.
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