Wipro’s American Depository Receipts (ADRs) reached a nearly 20-month high of $6.35 on January 12, surging by nearly 18 percent following the company’s release of its earnings for the December quarter.
Wipro’s shares experienced a surge of over 10 percent on January 15, reaching a new 52-week high.
This notable increase came from the company surpassing estimates in its December quarter earnings. Furthermore, its American Depository Receipts (ADRs) saw a remarkable uptick of almost 18 percent, reaching a near-20-month high at $6.35 after releasing the company’s results on January 12.
Wipro has reported a decline in profits year-over-year for the fourth consecutive quarter. Analysts anticipate a continued underperformance compared to its peers, attributing it to a notably low correlation between Wipro’s deal wins and top-line growth.
At 9:16 am, Wipro shares were trading nearly 10 percent higher at Rs 511.95 on the National Stock Exchange (NSE).
The third quarter is generally challenging for IT companies due to the holiday season in the US and Europe, where furloughs and a reduction in working days can affect overall performance.
In the case of Wipro, the anticipated decrease in revenue can be attributed mainly to the persistent weakness in the Banking, Financial Services, and Insurance (BFSI) sector.
Additionally, the company’s substantial exposure to consulting becomes a concern, especially during a period marked by a significant decline in discretionary spending.
Wipro’s muted performance and Q4 guidance leave much to be desired, said Nuvama Institutional Equities, though analysts do see signs of gradual improvements. “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,” it said.
In the quarter ending December 2023, Wipro secured substantial deals amounting to $0.9 billion, a decrease from the $1.28 billion in the previous quarter. However, the total deal wins remained consistent at $3.8 billion, aligning with the figures recorded in the September quarter.
Motilal Oswal Financial Services, in its report, highlighted Wipro management’s commentary on the higher deal wins in the consulting vertical, suggesting a potential turnaround.
The report emphasized that the drag from this segment appears to be bottoming out, which is anticipated to contribute to an overall improvement in growth.
IDBI Capital noted early signs of a return to growth in the company’s consulting segment, citing double-digit growth in order bookings in the Capco business and observing positive indications in discretionary spending. With an order book of $3.8 billion (book-to-bill ratio of 1.43x), analysts foresee a boost in revenues.
As a result, analysts are optimistic about revenue growth improving over the FY24-FY26 period. The expectation is driven by various factors, including higher utilization, pyramid rationalization, the absence of restructuring expenses, resource reallocation, and increased focus on consulting, all contributing to the enhancement of margins.
Given Wipro’s subdued 3Q FY24 revenue growth and a conservative 4Q guidance, the brokerage anticipates Wipro’s FY24 revenue growth rate to be among the lowest in comparison to Tier-1 IT Services peers. Additionally, it foresees the margin falling below the management’s medium-term guided range of 17.0-17.5 percent.
The brokerage maintains a ‘Neutral’ rating on the stock, awaiting further evidence of the execution of Wipro’s revamped strategy and a successful turnaround from its challenges over the past decade. It has set a target price of Rs 520 for Wipro shares, based on 19x FY26E EPS.
IDBI Capital, on the other hand, upgraded its rating on Wipro to ‘Buy’ from ‘Hold,’ revising the target multiple to 20x from 17x. This adjustment results in a target price of Rs 535 (previously Rs 390).
The brokerage cites Wipro’s ability to secure large deals, robust order bookings, and client mining as key drivers for potential revenue improvement in macro conditions.
Wipro’s strategic realignment with a focus on mining strategic accounts is highlighted as a growth strategy. While client mining efforts are expected to boost revenues, the necessity for the company to secure new large clients to match growth with peers is emphasized.
The brokerage, Nuvama, maintains a ‘hold’ call on the stock with a target price of Rs 460, citing the stock’s affordable valuation and high dividend yield as factors limiting downside potential.
