Wipro’s Growth Still Needs To Catch Up With Peers, Analysts Say After Q2 Results

A rise in profit and consolidated operating margin of Wipro Ltd. failed to enthuse investors as the company’s core IT services business remained flat in the quarter ended September.

Net profit rose 6.6 percent sequentially to Rs 2,561 crore in the July-September period, according to its exchange filing. Its operating margin widened 60 basis points to 17.3 percent.

Wipro’s IT services business—that contributes majority of its revenue—rebounded but remained weak, growing at 0.5 percent in dollar terms. The IT business margin contracted for the fourth straight quarter.

The company forecasts its IT services business revenue to range between $2,065 million and $2,106 million—translating to a sequential growth of 0.8-2.8 percent in the next quarter.

Though the third-quarter guidance is a tad better, the analysts said the company’s growth still needs to catch up with peers.

Here’s what brokerages have to say about Wipro’s Q2 Results 2019-20

BofAML

• Maintains ‘Neutral’ with a target price at Rs 260 apiece.
• Third-quarter guidance a shade better than expected.
• Growth still playing catch-up to peers.
• Reasonable quarter of deal wins helps outlook.
• Deceleration in banking, stabilisation in healthcare.

Credit Suisse

• Upgrades to ‘Neutral’ from ‘Underperform’.
• Target price hiked to Rs 250 from Rs 240 apiece.
• Valuations fair as business delivers on low expectations.
• Company put up a decent margin performance.
• BFSI was weak and in line with peers.
• Other verticals have an improving outlook.

Morgan Stanley

• Maintains ‘Underweight’ and cuts target price to Rs 233 from Rs 240.
• Second quarter had weaker IT services revenue while margins were better.
• Margin beat was aided by better collections and cost credits.
• Organic revenue growth guidance is softer than expected; uncertain of macro environment.

UBS

• Maintains ‘Sell’ with a target price of Rs 205 a share.
• Second quarter IT services revenue in line.
• EBIT margin above estimates due to cost controls and lower sub-contractor costs.
• Expects positive reaction in near term to margin beat and better-than-expected third-quarter guide.

Emkay

• Maintains ‘Sell’ with a target price of Rs 235 apiece.
• Subdued commentary on BFSI.
• Growth moderates in top clients.
• Company saw strong hiring to build on capacities.
• Company expected to underperform despite several interventions by management.