Market Updates : Given that Wipro Ltd.’s American Depository Receipts (ADRs) were up 17% on Friday, investors shouldn’t be shocked by Monday morning’s 13% stock gain at domestic exchanges. Analysts noted that, of the four IT majors, Wipro is the only one whose December quarter statistics showed signs of improvement in discretionary spending. But before becoming overly optimistic about the counter, analysts want to see more.

The stock increased by 13.10 percent on Monday, reaching a peak of Rs 511.95 on the BSE. As a result, the IT subscription has increased by 15% in the past month. In contrast, Tata Consultancy Services Ltd. had a rise of 2%, Infosys Ltd. of 5%, and HCL Technologies Ltd. of 7%.

“Wipro’s Q3 results point to a shift. The first revenue degrowth in the previous four quarters occurred around the top end of the advised band. After three quarters of successively lower bands, the guidance for the upcoming quarter is gradually better. Its consultancy division, CAPCO, had double-digit booking increase. We think it is the first quantifiable indication of a recovery in discretionary spending. Wipro’s recent performance has been hindered by CAPCO’s exposure to discretionary expenditure. That might now drive its recovery if the climate improves, according to a note from JM Financial.

Wipro has underperformed in execution, according to Axis Securities, despite achieving better outcomes and closing more deals. It added, nevertheless, that FY25 might see some rebound supported by significant deal wins. It suggested a ‘Sell’ recommendation for the stock due to insufficient visibility.

Wipro’s trajectory is “recovering,” according to HDFC Institutional Equities, following a 6% decline in the quarterly revenue rate over the previous three quarters. Even while the feedback on the consulting industry has improved, Wipro’s growth indicators—such as the loss of deal market share to competitors, the general fall in verticals, and the sharp decline in T5 accounts—remain concerning.

Driving growth from its partner ecosystem has been Wipro’s primary focus. The company is also working to improve its operating profile based on modifications to its operating structure, including portfolio focus in APMEA, absorbing growth office functions within Strategic Market Units, developing a delivery cadre, and placing a stronger emphasis on training and development. Maintain REDUCE on Wipro with a target price of Rs 450, based on 17 times FY26E, according to the brokerage. Wipro recorded a 1.7% sequential decline in constant currency (CC) revenue for the quarter. This was in the range of – 3.5% to minus 1.5%, which was the upper end of their guidance. Analyst estimates of a 2-4% degrowth in sales were surpassed by Wipro’s degrowth.

“This performance has come about despite some low-margin client rationalisation in APMEA (effect not measured). Compared to Street’s worst fears, which were for a “wider and deeper” furlough quarter, the result has been significantly better. The high ADR performance (up 18 per cent on 12th January 2024) is likely because of positioning,” said Nirmal Bang Institutional Equities.

Kotak Institutional Equities noted the management’s encouraging comments and noted that strict cost control allowed for a 50 basis point margin beat.

“A rapid recovery in demand is not reflected in the YoY fall in TCV or the projection of a revenue decline at the midpoint for 4QFY24. Estimates for EPS remain essentially unchanged. Maintain the Rs 430 fair value and REDUCE,” it stated.

According to Motilal Oswal, Wipro should have one of the lowest revenue growth rates among tier-1 IT services providers in FY24. Furthermore, it shows that Wipro’s margin is less than the management’s 17–17.5 percent medium-term advised range. This broking form kept its “Neutral” position on the stock, waiting to become more constructive on the stock until it sees more proof of Wipro’s updated strategy being implemented and a successful recovery from its past ten years of difficulties. For the stock, Motilal Oswal has set a target price of Rs 520.

“We do see hints of progressive improvements, but Wipro’s lackluster Q3FY24 performance and Q4FY24 projections leave much to be desired. For FY24, Wipro is expected to record a YoY fall in top line that is much lower than peers. We still expect Wipro to perform behind peers, mostly because of the company’s poor relationship between deal wins and top line growth, which is made worse by the company’s ongoing departures. The downside potential of the company is limited by its cheap valuation and high dividend yield, according to Nuvama Institutional Equities. For the Wipro shares, this brokerage recommended a target price of Rs 460.

Disclaimer : The above article is meant for informational purposes only, and should not be considered as any investment advice.


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