Shares of Wipro, a leading IT firm in India, fell nearly 8% in early morning trading today, reaching ₹513.25 per share. This decline followed disappointing June quarter results that fell short of investor expectations.
In response to the weak financial performance, several brokerage firms have reaffirmed their sell ratings on Wipro. Nomura has maintained its ‘Sell’ rating while raising its target price to ₹600 per share. Similarly, Citi has also maintained its ‘Sell’ rating but increased its target price to ₹495 per share, up from the previous target of ₹455 per share.
Morgan Stanley maintained its ‘Underweight’ on Wipro, raising its target price to ₹459 per share from ₹421 per share. Domestic brokerage firm Nuvama Institutional Equities continues to anticipate that Wipro will underperform peers, while its inexpensive valuation and high dividend yield limit the downside potential. It retains its ‘hold’ rating on the stock with a price target of ₹530 apiece.
While Motilal Oswal cut its FY25E EPS by 1% and kept FY26E EPS broadly unchanged after its 1Q print, It reiterated its ‘neutral’ rating, as it views the current valuation as fair. Its price target implies 20x FY26E EPS. Kotak Institutional Equities has also retained its ‘Sell’ rating with a face value of ₹460 apiece.
On Friday, after market hours, the company reported its gross revenue for the quarter at $2,635.8 million. This represents a 1.1% decline quarter-over-quarter (QoQ) and a 3.8% decrease year-over-year (YoY), marking the sixth consecutive drop in top-line revenue.
The IT services segment generated revenue of $2,626 million, down 1.2% QoQ and 4.9% YoY (in constant currency terms, -1% QoQ and -4.9% YoY). Within this segment, the Banking, Financial Services, and Insurance (BFSI) sector grew by 0.3% QoQ, maintaining positive momentum for the second quarter due to increased deal flow.
However, other sectors such as energy and utilities, manufacturing, healthcare, and communications saw declines of 7%, 4.2%, 2.6%, and 1.2% QoQ, respectively.
The company has observed renewed growth potential in the consumer and communications sectors. Revenue in the Americas 1 region increased by 0.4% QoQ in constant currency, while Americas 2 experienced a decline of 0.7% QoQ. Capco achieved a growth rate of 3.4% QoQ, with expectations for continued momentum.
Conversely, Europe and the Asia-Pacific, Middle East, and Africa (APMEA) regions faced softness, with decreases of 1.4% and 4.2% QoQ, respectively.
Management maintains flat IT services revenue growth for the September ending quarter at $2,600 million to $2,652 million. This translates to sequential guidance of (-)1.0% to +1.0% in constant currency terms.
Despite falling revenues sequentially, the company has managed to maintain its operating margin. The Earnings Before Interest and Taxes (EBIT) margin of Wipro increased marginally to 16.5% in Q1 FY25 from 16.4% reported in the March quarter of FY24.
According to Nuvama, the margin improvement was driven by better utilization, productivity in fixed-price projects, and overhead optimization. Management anticipates these factors will continue to contribute to margin enhancements.
The total contract value (TCV) for the quarter was $3.3 billion, a 9% decrease from QoQ, with a large TCV of $1.2 billion.
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