Wipro's Q3 Results: Shares At 15-Month Low On Analysts’ Mixed Outlook
Here's what brokerages made of Wipro's Q3 FY22 performance:
Shares of Wipro Ltd. closed with over 6% losses at Rs 649.75 apiece. This is the steepest single-day decline in 15 months as analysts weren’t so happy with the IT company's third-quarter performance.
The software services exporter saw its revenue rise 3.28% sequentially to Rs 20,313.6 crore in the quarter ended December. That compares with the Rs 20,270-crore Bloomberg consensus estimate.
Wipro guided for a revenue of $2,692-2,745 million in the quarter ended March. That's a 2-4% sequential growth and translates into revenue growth of 26.9-27.5% for FY22.
Q3 FY22 Highlights (QoQ)
Net profit rose 2.25% to Rs 2,996.5 crore, against the Rs 3,002-crore estimate.
EBIT up 2.4% to Rs 3,575.20 crore.
Margin contracted 15 basis points to 17.6%.
12-month trailing attrition rate rose to 22.7% from 20.5%.
The stock declined as much as 6% in intraday trade to Rs 650 apiece. Of the 48 analysts tracking the IT company, 19 recommend a 'buy', 17 suggest a 'hold' and 12 have a 'sell' rating, according to Bloomberg data. The 12-month consensus price targets implies an upside of 8.7%.
Here's what brokerages made of Wipro's Q3 FY22 performance:
Morgan Stanley
Maintains 'equal weight' with a price target of Rs 775 apiece, implying a potential upside of 12%.
Unlike peers, Wipro missed revenue estimates in the third quarter.
Q3 performance has been in line with its internal expectations and does not reflect any weakness in business.
Data points and management commentary point to continued momentum.
Margin performance is good in the context of a challenging environment.
We have lowered our revenue forecasts, while inching up margin estimates.
We continue to assume Wipro's IT services margins improve marginally over the next two years as amortization-related charges come down.
Dolat Capital
Maintains 'reduce' with a target price of Rs 650 apiece, implying a potential downside of 6%.
Quarterly guidance for Q4 is at 2-4% implying limited acceleration in growth rate as it includes two acquisition impact.
Organic guidance would be lower by nearly 50 basis points.
Large deal total contract value is lacklustre at $600 million. The TCV performance has softened in recent quarters partially due to lack of mega-deals.
Emkay Global
Retains 'hold' with a target price of Rs 700 apiece, implying a potential upside of 1.3%.
Broad-based revenue growth, healthy large deal intake of $600 million, in-line Q4 guidance
Decline in gross utilisation (75.6% in Q3 vs 78.1% in Q2), voluntary trailing 12-months attrition rate rising to 22.7% vs. 20.5% in Q2 FY22
Revenue grew 3% QoQ CC to $2.64 billion and came in at the mid-point of Wipro’s guided range (2-4% QoQ growth). Revenue growth was broad-based, led by consumer (5.2% QoQ CC), BFSI (4.1%).
Wipro continues to build on its relationship with hyperscalers, and as a result, its cloud revenue grew at an accelerated rate of 30% YoY in 9MFY22.
Wipro saw good progress on the client mining front, with addition of two, one and three clients in each in $100 million+, $75 million+ and $50 millions+ buckets, respectively.
IT services’ EBITM declined 10 basis points QoQ to 17.6% due to two months of incremental impact of salary hikes and lower utilization, partly offset by continued revenue growth momentum and operating efficiencies.
Wipro is now more confident of attrition moderating in the next couple of quarters but expects that supply-side challenges, increased hiring costs and investments in front sales would weigh on margins in the near term.
Prabhudas Lilladher
Maintains ‘buy’, cuts target price to Rs 737 apiece from Rs 753 earlier.
Wipro reported a miss in IT services revenue of $2.64 billion, 3% QoQ in constant currency terms after four quarters of outperformance.
Growth was within the guided range of 2-4% QoQ in constant currency terms.
Wipro closed 11 large deals resulting in a TCV of over $ 600 million. Order book in ACV terms grew 27% on a year-to-date basis. Bookings came in the range $10-30 million, grew 50% YoY this quarter.
Management expects revenue from IT services business to be in the range of $2,692 million to $2,745 million. (2-4% QoQ CC) in 4QFY22. Guidance implies 27-28% YoY growth in IT services.
Slight beat in operating margin: Consolidated EBIT margins above our estimates but below consensus estimates.
Margins remained resilient despite the two-months impact of the wage hike rolled out in September 2021 and were slightly above the guided range of 17-17.5%.
Continued strong hiring momentum, attrition increased further: Hiring continued to be strong with net headcount addition of 10,306 +5% QoQ, +22% YoY. Strong fresher intake, 70% more freshers in FY22 vs FY21, will provide pyramid optimization benefits in FY23. Believe that attrition may peak out in Q4 and stabilise thereafter.
Investec
Maintains ‘buy’ rating, but cuts target price to Rs 737 apiece from Rs 753 earlier.
Wipro reported a 2.2% QoQ growth in revenue to $2,661 million for the IT services business—a $35 million miss vs expectations.
Wipro sees continued strength in the demand environment with the highest ever wins of smaller-sized deals. Based on this Wipro is guiding 2-4% QoQ growth for the fourth quarter of FY22.
The confidence in the underlying demand environment and the likelihood of offsets to travel-related headwinds on margins from lower Capco-related costs leads to limited or no impact to our estimates for FY22 and FY23E.
Wipro won 11 large deal wins with a TCV of $600 million vs a TCV of $580 million last quarter.
The management highlighted that clients are being pragmatic and going with a phased approach vs a big bang large deal approach. Implies faster deal to revenue conversion leading to strong near to medium-term growth performance.
JM Financial
Maintains ‘hold’ with a target price of Rs 690 apiece—implying a potential upside of 0.2%.
Wipro’s 3QFY22 earnings failed to excite unlike the trend seen in recent quarters. Company reported a 3% QoQ c/c revenue growth which was at the mid-point of the revenue guidance.
Q4 FY22 revenue growth guidance of 2-4% QoQ growth is along expected lines with underlying employee addition (Wipro added 10k+ employees during the quarter, marking the fourth quarter of strong employee addition).
Wipro remains confident of industry demand and suggests improvement in win rates though overall TCV wins were nearly flat QoQ at $600 million.
Headcount addition remains impressive and strong, similar to the trend across other peers.
Wipro continued to make the desired progress on top clients scale-up.
Axis Securities
Maintains ‘hold’ with a target price of Rs 750 apiece—implying a potential upside of 9%.
Revenue growth stood below our expectations at Rs 20,313 crore, up 3.1% QoQ and 27% YoY in constant currency terms.
Management has given Q4 FY22 guidance of 2%-4% revenue growth in CC terms and its commentary continues to be positive in the verticals such as BFSI, hi-tech media, life sciences, and communications.
The retail vertical is expected to recover slowly across geographies in the near term.
The majority of the verticals are witnessing strong growth and are likely to continue their growth in the forthcoming quarters in the backdrop of a strong deal pipeline.
Wipro has proactively built a resilient business. Furthermore, its Ebitda margins are likely to expand in the near term driven by long-term contracts with the world’s leading brands, depreciation in rupee, lower travel cost, and lower on-site expenses.