The American Depository Receipts (ADRs) of Wipro Ltd were up 17 per cent on Friday, and therefore a 13 per cent stock rally on Monday morning at domestic bourses should not surprise investors. Wipro, analysts said, is the only IT major — out of four that are out with December quarter results, which indicated green shoots in discretionary spending. Analysts, however, want to see more before turning outright bullish on the counter.
On Monday, the stock hit 13.10 per cent to hit a high of Rs 511.95 on BSE. With this, the IT scrip is up 15 per cent in the last one month. This is against a 7 per cent rise for HCL Technologies Ltd, 5 per cent for Infosys Ltd and 2 per cent for Tata Consultancy Services Ltd.
“Wipro’s Q3 performance suggests inflection. Revenues degrowth came towards the upper end of the guided band, a first in past four quarters. Next quarter’s guide is incrementally better after three quarters of sequentially lower bands. CAPCO, its consulting business, saw double digit booking growth. That, we believe, is a first quantitative sign of rebound in discretionary spend. CAPCO’s exposure to discretionary budget plagued Wipro’s recent performance. Now as environment turns, that could lead its rebound,” said JM Financial in a note.
Read more: Wipro shares set for rally? Q3 results much better than worst fears, say analysts
Axis Securities said Wipro has lagged in its execution despite having better results and better deal wins. However, FY25may show some recovery backed by strong deal wins, it said. For lacking the necessary visibility, it recommended a ‘Sell’ rating on the stock.
HDFC Institutional Equities said Wipro’s trajectory is ‘recovering’ after a 6 per cent drop in the quarterly revenue rate over the past three quarters. Despite improved commentary on consulting business, Wipro’s growth markers remain stressed such as deal market-share loss to peers, broad-based decline within verticals and a steep decline in T5 accounts.
Wipro has focused on driving growth from its partner ecosystem and is tackling improvement in operating profile based on changes in the operating structure – portfolio focus in APMEA, absorbing growth office function within the Strategic Market Units, building Delivery cadre and impetus on training & development. Maintain REDUCE on Wipro based on 17 times FY26E for a target of Rs 450,” the brokerage said.
Wipro logged a constant currency (CC) revenue degrowth of 1.7 per cent for the quarter, sequentially. This was near the upper end of its guidance of minus 3.5 per cent to minus 1.5 per cent. Wipro’s sales degrowth beat analyst projections of 2-4 per cent degrowth.
“This performance has come about despite some low-margin client rationalisation in APMEA (impact not quantified). The performance has been much better than street’s worst fears as it was expecting ‘wider and deeper’ furlough quarter. The sharp ADR performance (up 18 per cent on 12th January 2024) is likely because of positioning,” said Nirmal Bang Institutional Equities.
The rigorous cost control enabled a margin beat of 50 basis points said Kotak Institutional Equities, which also took note of positive commentary by the management.
“However, a YoY decline in TCV and guidance of a revenue decline at the mid-point for 4QFY24 do not reflect a quick demand recovery. EPS estimates are largely unchanged. Retain fair value of Rs 430 and REDUCE,” it said.
Motilal Oswal said it expects Wipro’s FY24 revenue growth rate to be among the lowest in tier-1 IT services pack. Further, it sees Wipro’s margin below the management’s medium-term guided range of 17-17.5 per cent. This broking form retained its ‘Neutral’ stance on the stock, as it awaits further evidence of the execution of Wipro’s refreshed strategy, and a successful turnaround from its struggles over the last decade before turning more constructive on the stock. Motilal Oswal has a target of Rs 520 on the stock.
“Wipro’s muted Q3FY24 performance and Q4FY24 guidance leave much to be desired – though we do see signs of gradual improvements. Wipro is set to report a YoY decline in top line for FY24 – significantly below peers. We continue to anticipate Wipro to underperform peers, primarily due to its low correlation between deal-wins and top line growth – not helped by the continuous exits. The stock’s inexpensive valuation and high dividend yield limit the downside potential,” said Nuvama Institutional Equities. This brokerage suggested a target of Rs 460 on the Wipro stock.
Also read: Wipro Q3 results: Profit drops 12%, dividend announced; IT firm gives guidance for Q4; key highlights
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