Wipro’s Stock Tumbles As Analysts Remain Cautious After Q2 Results

Shares of Wipro Ltd. fell the most in six months as analysts remained cautious over the software services provider despite meeting estimates in the quarter ended September.

The IT company’s net profit rose 3.15% over the previous quarter to Rs 2,465.7 crore in the July-September period. The bottom line took a hit because of a deferred tax impact of Rs 1,600 crore and a decline in other income. Its IT services margin stood at 19.2% against 19% earlier.

Wipro announced a Rs 9,500-crore buyback to reward shareholders—its fourth such exercise in the last five years, and the second by an Indian IT company this fiscal.

Analysts said the guidance for the third quarter is better than expected. The new chief executive officer’s strategy indicates a focus on profitable growth, though the changes will only be gradual.

Of the 47 analysts tracking Wipro, 15 have a ‘buy’ rating, while 16 each recommend a ‘hold’ and ‘sell’. The average of 12-month Bloomberg consensus target prices implies a downside of 12.2%. The stock fell as much as 6.6% in early trade on Wednesday to Rs 351.4 apiece compared with a 0.58% drop in the benchmark Nifty 50.

Here’s what brokerages have to say:

UBS

• Maintains ‘sell’ rating with target price at Rs 210 apiece

• Second-quarter in line with estimates; guidance better than expected

• Strategy for revenue acceleration remains key to re-rating

JPMorgan

• Maintains ‘underweight’ rating with a target price of Rs 270 a share

• Strategy changes sensible but gradual

• Second-quarter is a clean beat; third quarter guide strong

• Solid margin execution continues

• Upgrades earnings estimates by 2-8%

Macquarie Capital Securities

• Maintains ‘outperform’ rating and hikes target price to Rs 416 from Rs 310 apiece

• Initial peek into the new CEO’s strategy indicates focus on profitable growth

• Demand tailwinds exist for the company

• Margin-balance of growth and profitability likely

• Lifts FY21-23 EPS estimates by 5-7%

• Increase in the visibility of growth in the medium term

• Raises target multiple to 20 times from 16 earlier

BofA Securities

• Maintains ‘neutral’ rating with a target price of Rs 370 apiece

• Revenue beat; Q3 guidance, EBIT margin, buyback as expected

• Contours of strategy appear strong; the pace of execution key

• Operational efficiencies offset forex impact

Investec

• Downgrades rating to ‘hold’ from ‘buy’ but hikes target price to Rs 360 from Rs 250 apiece

• Commentary in line with positive guidance

• Revenue growth guidance stronger than underlying estimates

• Revenue growth implies an estimated 1.5-3.5% quarter-on-quarter growth for Q3 FY21

• Wipro has historically had a stronger second half versus peers

• Current guidance implies that the second half is likely stronger than the first

• New CEO’s five key priorities to create a more outward-looking client-focussed organisation

• Underlying estimates already model in reasonable performance

• Further material upgrades are unlikely

(Corrects an earlier version that misstated that UBS cut target price on Wipro.)