Wipro Q1 Results: Brokerages Cheer Growth Focus, Deal Wins Under New CEO; Margin Woes Remain
Here’s what analysts have to say about Wipro’s June-quarter results...
Shares of Wipro Ltd. hit a record high as analysts cheered its second-quarter guidance, healthy revenue, growth focus of the new chief executive, and deal wins, among others. The stock, however, soon came off its peak.
The software services exporter reported a 12.4% sequential growth in revenue at Rs 18,252.4 crore in the quarter ended June. That’s the fastest pace in 38 quarters. Its net profit and earnings before interest and taxes, too, rose.
Wipro now expects revenue from its IT services business to be at $2,535-2,583 million in the quarter ending September, a 5-7% growth over the preceding three months.
Thierry Delaporte, managing director and chief executive officer at Wipro, said the company would deliver a double-digit revenue growth for the full fiscal, even excluding the contribution from its recent Capco acquisition.
Wipro’s operating margin, however, contracted on account of wage hikes.
Analysts, too, highlighted a spike in attrition, wage hikes, rupee appreciation and the U.S.’ plan to raise corporate taxes as some risks for the company.
Shares of Wipro rose to a record high of Rs 589.24 apiece, but soon erased gains.
Of the 50 analysts tracking the company, 17 recommend a ‘buy’, 18 suggest a ‘hold’ and 15 have a ‘sell’ rating, according to Bloomberg data. The consensus 12-month target price of analysts tracked by Bloomberg implies a downside of 8% from the current levels.
Wipro stock has gained nearly 5% over the past month, and close to 50% in 2021 so far.
Here’s what analysts have to say about Wipro’s June-quarter results...
Dolat Analysis & Research
Ascribes reduce’ rating with a target price of Rs 520 apiece.
Added new TCV of $750 million, a softer run rate than earlier due to lack of mega-size deal addition in the June quarter.
Confidence in growth led by strengthening of leadership in the last two-three quarters.
Pipeline remains strong with large number of opportunities available within its target client base.
Scales up growth estimates by 4.8% each for FY22 and FY23E.
The gains are well priced in already.
Strong improvement on multiple parameters over last three-four quarters due to focused mapping of client/business metrics, strong leadership team, emphasis on large deal wins.
Frequency of large deal wins in Q2 and beyond and ability to manage supply side factors crucial for overall earnings growth prospects.
Expects operating profit margin to decline by 115 basis points due to wage hike impact and reinvestments in talent.
Wipro likely to continue to deliver strong revenue momentum over next four-five quarters.
Key Risks: Wage hike for junior workforce and spike in attrition.
Wipro Q1 Review - Results Beat; Guidance Robust; To Prioritise On Growth Over Margin: Dolat Capital
Edelweiss
Recommends ‘buy’ with a 12-month price target of Rs 680 apiece.
Highest-ever organic QoQ revenue growth in 38 quarters bodes well for Wipro.
Strong demand for cloud and digital transformation to continue to aid BFSI, consumer, communications, energy, natural resource, utilities segments.
Large deals were exceptionally strong in America.
Contraction in operating margin due to Capco acquisition.
Capco acquisition, offshoring, automation and productivity improvement to aid consistent robust growth.
Shift towards digital transformation and cloud augur well for the medium-term outlook.
“It is a start of tech-upcycle based on our ‘techolution’ thesis to power growth momentum.”
Key Risks
Double dip recession in major markets like the U.S., prolonged slowdown in Europe.
Sharp cross currency movements, appreciation of the rupee against U.S. dollar, euro and pound.
Low bench strength.
Emkay
Recommends ‘hold’ with a 12-month target price of Rs 565 apiece.
Deal intake in the quarter ended June driven by medium-sized deals as compared to couple of large deals in the previous two quarters.
Revenue acceleration and strong operational rigour (automation, offshoring, employee pyramid rationalization) are likely to support margins.
Steady improvement in demand for new age services such as cloud, digital transformation, cyber security and data analysis are likely to aid growth momentum.
Revenue from top 10 clients grew 13.9% QoQ boosted by Capco integration.
Key Risks: EBIT margin miss, rise in voluntary TTM attrition rate to 15.5% versus 12.1% in Q4FY21.
Nirmal Bang
Recommends ‘accumulate’ with a target price of Rs 604 apiece.
Wipro’s QoQ constant currency IT service revenue growth and margin in Q1FY22 significantly ahead of estimates.
Best growth delivery in 10 years and fourth successive quarter of strong growth under the new CEO, Thierry Delaporte.
Many of the objectives as outlined by new CEO on November 2019 like ‘obsession with growth’ and maintenance of stable margins have been achieved one year in advance.
Remains to be seen if Capco can be a big growth driver in BFSI segment beyond FY22.
Maintains target PE multiple at 23x.
Further re-rating will be possible only if organic growth keeps up with industry peers.
Key Risks
Lack of breadth could likely pose doubts on sustainability of revenue growth momentum.
U.S. customers likely to face adverse impact from higher corporate taxation being planned by Biden administration.
Reliance Securities
Maintains ‘buy’ with a two-year target price of Rs 565 apiece.
Net income growth in Q1 driven by higher revenue growth and lower taxes.
Recent efforts, including simplification of operating structure, capacity upgrade and talent management under new leadership bode well for Wipro in medium term.
UBS
June quarter IT services revenue in constant currency terms and net profit well above estimates.
Expects to see an upgrade in consensus earnings, given the Q1 beat and likely revenue contribution from Capco.
Key Risks: Lower TCV addition likely to be cause for concern.
Yes Securities
Maintains ‘add’ rating considering the current valuation.
QoQ revenue growth in IT services slightly above estimate despite the completion of Capco acquisition in the June quarter.
Revenue guidance given by Wipro for Q2 remains healthy.
Decline in consolidated EBIT margin due to wage hike and impact of Capco acquisition.