Wipro Q2 Results: Shares Hit A Record As Brokerages Raise Price Targets
Analysts raised their target prices citing broad-based revenue growth, healthy large-deal intake, unprecedented demand environment, especially for new-age services like cloud, as the key reasons for raising the target prices.
However, softness in total contract value, rising attrition which is expected to prolong for a few more quarters, return of discretionary costs and weak operation cash flow generation remain key risks.
Shares of Wipro rose as much as 10% to Rs 739.85 apiece in intraday trade on Thursday, before paring gains to close 5.30% higher at Rs 708.25.
Of the 50 analysts tracking the stock, 21 have a 'buy' rating, according to Bloomberg data. 16 recommend 'hold', while the remaining 13 recommend 'sell'. The 12-month Bloomberg consensus target price indicates a downside of around 7% from current levels.
Maintains 'neutral' rating with the target price increased to Rs 710 from Rs 650 earlier, with an implied upside of 5.56%.
Revenue growth in IT services and organic growth exceeded our estimates.
EBIT margin in information technology services remained little changed on a sequential basis despite mergers and acquisitions impact and wage hike.
Company's management expects attrition to increase further in the December quarter.
Company's Q3 revenue growth guidance was in line with our estimate.
Company's revenue growth guidance as positive, given the supply constraints and seasonality.
Continue to remain watchful on margin.
Expect FY22 IT services revenue growth of 28% YoY.
Raised FY22/FY23E EBIT margin estimate by 100 bps/30 bps, resulting in FY21-23E profit after tax growth of 13%, due to better than expected margin performance.
Growth strategy, focus on continuously investing in talent, simplified operational model to support valuation.
Expect the refreshed strategy of the new management to make the organisation leaner.
Company's growth-focused and client-centric approach are likely to aid growth over the medium to long term.
Upgrade FY22/FY23E EPS estimate by 7%/2% to account for better growth performance.
Dolat Analysis & Research Themes
Maintain 'Reduce' with the target price raised to Rs 640 from Rs 520 earlier, an implied downside of 4.85%.
Company delivering impressively on growth since the induction of Thierry Delaporte as CEO.
Large deal wins and strengthening of leadership have been the key drivers of growth.
Two acquisitions have progressed better than anticipated.
Upgraded revenue estimates by 2%/5% for FY22/FY23E, given the strong growth performance, robust sequential guidance and sustained commentary on growth outlook.
Reduced operating margin estimates for FY23E by 16 basis points to account for supply-side led factors.
Expect revenue growth of 3.2% in cash credit terms in dollar basis in December quarter, led by traction across verticals and Capco-led go-to-market strategy for banking and financial services clients.
Operating margins should decline by 26 basis points quarter on quarter due to partial wage hike impact and reinvestments in talent.
Believe Wipro and other tier 1 IT companies would deliver strong revenue momentum over 4-5 quarters.
Softness in total contract value wins remain an area of concern.
High attribution can lead to rise in hiring cost, sub-contracting cost and even restrict growth.
Return of discretionary cost like travel cost is likely to add to margin woes.
Maintain 'hold' with the target price increased to Rs 680 from Rs 600 earlier, an implied return of 1.1%.
Broad-based revenue growth, healthy large deal intake and in-line Q3 guidance are positive indicators.
IT services revenue growth of 6.9% quarter over quarter was above our estimates.
IT services EBIT margin declined 10 basis points QoQ as revenue momentum and operational efficiencies offset the impact due to wage hikes and investment in sales and talent.
Deal pipeline close to an all-time high and includes a good mix of small, mid-sized and large deals.
Integration of Ampion boosted the performance of Asia Pacific/Middle East/Africa market, while Capco boosted the performance of America and Europe market units.
Company witnessing strong demand for new-age services like cloud, digital transformation, cyber security and data analysis.
Revenue from top clients grew 25% YoY, top 5 clients grew 35% YoY and top 10 clients grew 33% YoY.
Operating cash flow generation remains a concern with the company generating 56% OCF/EBITDA in September quarter.
Voluntary TTM attrition rate rising to 20.5% in Q2 from 15.5% in Q1 is another area of concern.
Upgrades to 'buy' from 'neutral', with the target price raised to Rs 780 from Rs 730 earlier, an implied upside of 16%.
September quarter performance was significantly better than expectations.
Q3 guidance was 'decent', given the seasonal impact of holidays.
Company set to report 25% growth in FY22, its best performance over the last decade by far.
Company's valuation fair as it trades at 5% discount to Infosys and 15% discount to TCS.
Outlook remains bright and remain convinced about the Wipro turnaround story.
The IT sector is at the cusp of unprecedented demand environment, triggered by compressed digital transformation.