Wipro’s share fell more than 2% Thursday morning. Brokers expect a 106% gain or 5% loss for Wipro shares. Wipro had its lowest Ebit margin since September 2018.
The Wipro’s share price dipped almost 2 percent intraday on Thursday after the company’s first-quarter earnings fell short of market expectations. On BSE, Wipro shares closed at Rs 414.10 per share, up 0.5%. The information technology (IT) giant’s consolidated net profit decreased by 20.94 percent year-over-year to Rs 2,563.6 crore for the quarter ending June 2022, compared to Rs 3,242.6 crore for the same quarter in the previous fiscal year. The sequential decline in earnings was 16.96 percent.
The results of Wipro’s June quarter failed to impress analysts, who said that the company’s growth and margin both fell short of expectations set by the market, even though deal wins continued to be solid. Wipro NSE (0.46 percent) was back to the typical underperformance that is normally recorded for the June quarters in the most recent of these years.
Wipro predicted more revenue growth from IT services on the strength of a strong project pipeline, and the company said margins likely bottomed out after increased expenditures impacted earnings in the June quarter. Wipro also claimed that a solid project pipeline will allow for better revenue growth.
Wipro’s Ebit margin for the quarter was 15%, its lowest level since September 2018. According to JM Financial, the large information technology company is quite likely to fall short of the 17-17.5 percent profit expectation through the fiscal year 2024 at the very least. JM Financial noted that Wipro “returned to its typical first-quarter underperformance.”
“Wipro’s Q1FY23 results fell short of expectations, with the 200bps QoQ margin decrease being the most significant setback. The deal’s total transaction value of US$1.1 billion, robust net hiring, and good 2Q projection of 3-5 percent QoQcc are all positive. We reduce our forecasts by 1% to 6% and anticipate that Wipro will produce a 6% EPS CAGR in FY22-25. Weak EPS growth, a significant chance of consensus estimates decreases, and a large dependence on acquisitions should impact the company, according to Jefferies analysts, who retain an underperform rating and 360 price target on Wipro shares.
According to analysts at Edelweiss Securities, Wipro has generated strong bookings and continues to maintain a robust pipeline. Wipro thinks that margins have reached a low and that it would increase margins via utilisation, subcontracting costs, and pyramid-widening. The firm reduced FY23E/FY24E EPS by 4.5 percent /4.7 percent, rolled over the valuation to Q3FY24E, and maintained a ‘buy’ recommendation on the company with a target price of Rs 851.
“We see Wipro’s share exposure to consulting, which accounted for over 10 percent of sales in the last year, as a potential threat to both growth and profitability. We anticipate a more significant drag on its recent consultancy acquisitions (Capco and Rizing) in the second half of fiscal year 23 (H2FY23), even though it is not seeing any effect at now. This remains the primary issue for the stock price,” it added, recommending a Rs 390 price objective for the firm.
However, according to the company’s management, the demand climate remains good as Q1FY23 deal bookings reached $1.1 billion, up 32% year-over-year, and the transaction pipeline is at an all-time high. According to the report, attrition has begun to moderate, which will alleviate pressure on margin, and the new business plan, which emphasizes a stronger relationship with customers, seems to be functioning well.
However, Wipro’s stock levelled out in Thursday afternoon trading after falling more than 2 percent in the morning. TCS and HCL Technologies, two of India’s leading IT service providers, both missed their first-quarter profit projections, contributing to a sluggish start for the June results season. Whereas, Infosys has yet to disclose its Q1 profits.
