Wipro Ltd’s American Depository Receipts (ADRs) rose 17% on Friday, so a 13% stock increase on Monday morning on local bourses should not surprise investors. According to experts, Wipro is the only IT giant out of four to have released December quarter results, which showed signs of growth in discretionary expenditure. Analysts, on the other hand, want to see more before they become overly optimistic about the stock.
On Monday, the stock rose 13.10 percent to a high of Rs 511.95 on BSE. With this, the IT scrip is up 15% in the previous month. This compares to a 7% increase for HCL Technologies Ltd, 5% for Infosys Ltd, and 2% for Tata Consultancy Services Ltd.
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“Wipro’s third-quarter performance implies an inflection point. Revenue degrowth occurred at the top end of the advised range, a first in the previous four quarters. After three quarters with successively lower bands, the guide for the following quarter is slightly better. CAPCO, its consultancy company, had double-digit booking increase. That, we believe, is the first quantifiable indicator of a recovery in discretionary spending.
According to Axis Securities, Wipro’s execution has lagged, despite higher performance and deal wins. However, it stated that FY25 may see some improvement, aided by solid contract wins. It advised that the stock be rated ‘Sell’ due to a lack of sufficient visibility.
According to HDFC Institutional Equities, Wipro’s trajectory is recovering following a 6% reduction in quarterly sales over the previous three quarters. Despite improving comments on the consulting sector, Wipro’s growth indicators remain pressured, including deal market share loss to rivals, a broad-based fall among verticals, and a sharp decline in T5 accounts.
Wipro has focused on driving growth from its partner ecosystem and is working to improve its operating profile as a result of changes in the operating structure, including a portfolio focus in APMEA, the absorption of growth office functions within Strategic Market Units, the formation of a Delivery cadre, and increased emphasis on training and development. Maintain a REDUCE on Wipro based on 17 times FY26E, with a target price of Rs 450,” the brokerage stated.
Wipro’s constant currency (CC) sales decreased by 1.7% sequentially in the quarter. This was around the top limit of its prediction range of -3.5% to -1.5%. Wipro’s sales degrowth above analyst expectations of 2-4 percent.
“This success was achieved despite some low-margin client rationalisation in APMEA (effect not measured). The performance much exceeded the street’s greatest predictions, which were for a ‘wider and deeper’ furlough quarter. Nirmal Bang Institutional Equities stated that the rapid ADR performance (up 18% as of January 12, 2024) is most likely due to positioning.
According to Kotak Institutional Equities, strict cost control enabled a 50 basis point margin beat, with management providing encouraging commentary.
“However, a YoY fall in TCV and estimate for a revenue decline at the midpoint for 4QFY24 do not indicate a speedy demand rebound. EPS expectations remain virtually unchanged. Retain the fair value of Rs 430 and REDUCE,” it stated.
Motilal Oswal predicts Wipro’s FY24 revenue growth rate to be among the lowest in the tier-1 IT services pack. Furthermore, it believes Wipro’s margin is below the management’s medium-term targeted range of 17-17.5 percent. This brokerage firm maintained its ‘Neutral’ rating on the company, waiting for additional proof of Wipro’s revised approach and a successful return from its challenges over the previous decade before becoming more optimistic about the stock. Motilal Oswal has a target price of Rs 520 for the stock.
