What Analysts Made Of Wipro’s Fourth-Quarter Results

Most analysts cut target price for Wipro Ltd. after the Bengaluru-based software services provider temporarily halted its practice of providing quarterly revenue guidance amid disruptions caused by the new coronavirus pandemic.

While the first two months of the quarter were strong in terms of execution in order book, the company saw a “cascading effect” after weakness in Europe and the U.S. in March, said Abidali Neemuchwala, chief executive officer and managing director at Wipro in a post-earnings interaction.

“We are still very much in the middle of the crisis. The economic turbulence is still unfolding. The impact of the virus in expected to peak in the ongoing quarter (April-June),” he said. “We expect revenue to decline in the quarter. Defending revenue and gaining market share will remain our priority.”

The pandemic has temporarily stalled shut businesses across the globe and the International Monetary Fund has already declared a recession. India went into the world’s biggest lockdown to contain its spread. IT firms are expected to see a disruption as they generate most of their business overseas and the bulk of it comes from clients in financial services, manufacturing and communications sectors. Wipro is grappling with adapting several of its services offerings from home.

The company’s net profit fell 4.5 percent sequentially to Rs 2,345 crore in the quarter ended March, according to its exchange filing. While its revenue rose 1.8 percent over the previous quarter to Rs 15,750 crore, margin narrowed 100 basis points to 16.1 percent.

Here’s what the brokerages have to say about Wipro’s fourth-quarter results…

CLSA

• Maintains ‘sell’ and cuts target price to Rs 180 apiece from Rs 235
• Sees weak revenue and no guidance for first quarter of FY21
• Less demand and lower pricing on account of discounts to weigh on operating margins
• Company to partially offset margins pressures by rationalising hiring, wage hikes
• Business continuity plans well in place with 90 percent employees working from home

Investec

• Maintains ‘buy’ with a target price of Rs 220 apiece
• Company highlighted that clients were looking to cut discretionary spends
• Clients also requested lower pricing and elongated payment terms
• This is likely to lead to some pressure on working capital requirements
• Sharp revenue decline has immediate impact with lower utilisation and lower operating leverage
• Current crisis is as bad, if not worse, than the Global Financial Crisis as the impact is likely across most verticals

Morgan Stanley

• Stays ‘underweight’ with a target price of Rs 180 apiece
• Management sees significant business impact due to Covid-19
• Company is seeing client budget reductions, cuts in discretionary spends
• Company getting client requests for temporary discounts and restructuring of existing spends
• Travel and hospitality, retail, auto and energy impacted the most

Macquarie

• Maintains ‘neutral’ but cuts target price to Rs 200 apiece from Rs 226
• Guidance suspension reflects uncertainties in developed markets
• Client behaviour in flux with higher risks in key impacted verticals
• Large EBIT margin drop likely in first quarter; certain levers exist for the rest of year

UBS

• Maintains ‘sell’ with a target price of Rs 170 apiece
• FY21 to start off on an uncertain note
• Expects cost pressures and working capital increases due to uncertainty
• Lack of guidance was anticipated; expects muted reaction from stock

Emkay Research

• Maintains ‘hold’ but cuts target price to Rs 195 apiece from Rs 200
• Weak fourth quarter results on expected lines
• Negatively surprised by a sequential decline in headcount
• Valuations remain inexpensive with net cash at 25 percent of the market cap