Wipro fails to show revival signs; may underperform peers, say analysts

Wipro shares fall after weak Q1: Shares of Wipro plunged up to 8.79 per cent at Rs 508.25 per share on the BSE in Monday’s intraday trade. This came after the information technology firm posted sluggish growth in the first quarter of financial year 2024-25 (Q1FY25). 

According to analysts, Wipro failed to show positive signs of a recovery with miss on revenue growth, muted growth guidance for 2QFY25 and decline in large deal TCV despite bagging a mega deal. 

However, the turnaround phase has started with some positives—a mega deal, growth recovery in Capco and growth trajectory of top accounts but much more needs to be done, analysts at Kotak Institutional Equities said 

 

The IT major’s growth during the quarter was driven by top-25 clients growing by 1.3 per cent, sequentially. Among verticals, BFSI continued its positive momentum with over 0.5 per cent QoQ constant currency (CC) growth, while Energy and Utilities and Manufacturing declined by 6.3 per cent and 3.0 per cent QoQ CC, respectively, led by certain large project closures.

The management looks confident of Q2 compared with Q1, and guided for -1 per cent to over 1 per cent IT Services revenue growth in Q2FY25, analysts at Nuvama said. 

Wipro surpassed Nuvama's estimate in EBIT margin, at 16.4 for the quarter, by around 50 basis points QoQ despite continued investments in talent. This was driven by improved utilisation, fixed price productivity and optimization of overheads were the key levers in margin expansion.

Additionally, the management believed that the operational rigour will help it maintain its margins in the near term with an upward bias. 

Wipro reported a net profit of Rs 3,036.6 crore for Q1FY25, up 5.2 per cent from the previous year. Sequentially profits were up by 6.2 per cent, surpassing Bloomberg's estimated Rs 2,931 crore.

However, the company's revenue for the March quarter dipped by 3.79 per cent year-on-year to Rs 21,963.8 crore, disappointing on Bloomberg's estimated Rs 22,237.4 crore. Sequentially, revenue declined by 1.1 per cent. 

The company’s total contract value stood at $3.3 billion during the June quarter, down 9 per cent QoQ. 

“Wipro noted that, while, it did not see any significant shift in demand with clients remaining cautious and discretionary demand muted, it is seeing parts of business recovering in Americas (led by BFSI and Consumer) and Capco (across verticals). It further said that its deal pipeline remains robust and strong across geographies and verticals, and its focus remains on converting pipeline into deal wins,” Abhishek Bhandari, Krish Beriwal of Nomura said. 

The brokerage expects Wipro’s Ebit  margin to improve 60 bps YoY to 15.8 per cent in FY25 and 30 bps YoY to 16.1 per cent in FY26F.  It retained ‘Buy’ rating with an unchanged target price of Rs 600 valued at 24 times the FY26 earning per share (EPS). 

Further, Wipro’s soft start to the year leaves much to be desired, analysts at Nuvama said, adding that they anticipate Wipro to underperform peers while the inexpensive valuation and high dividend yield may limit the downside potential.

The brokerage further said that while there are some green shoots visible in consulting, BFSI and consumer segments, the path to industry average growth is a long one. It retained its ‘Hold’ call for Wipro with a target price of Rs 530 per share. 

However, not all are optimistic on Wipro’s near term prospects, as analysts at Kotak said that the IT major needs to correct underperformance in several areas to close the gap in growth with peers, a challenging task. 

The brokerage has cut FY2025-27 revenue estimates by 2-4 per cent in dollar terms with reduced FY2025-26 EPS estimates by 1-2 per cent.

“At 21X FY2026E, the stock is expensive with no margin of safety. Retain SELL with FV of Rs460, valuing the stock at 17X September 2026 EPS (March 2026 earlier),” Kawaljeet Saluja, Sathishkumar S, and Vamshi Krishna of Kotak noted. 

At 10:23 AM; the shares of the company were down 8.30 per cent at Rs 511 per share on the BSE. By comparison, the BSE Sensex was up 0.13 per cent at 80,705 levels.