Wipro share price targets see cuts on muted guidance, weakest Q2 results in tier I IT pack

Wipro's September quarter results were uninspiring, the weakest among IT peers, and its third quarter guidance was muted. While the order inflows were strong, analysts see de-growth in dollar revenue in the remainder of FY24. A slowdown in discretionary spending is visible and conversion of orders to total contract value (TCV) to revenue has become slower, they said while reducing their earnings estimates and target prices for the stock.

Analysts noted that revenue de-growth at 2 per cent sequentially in constant currency (CC) terms came in at the lower end of the earlier guidance. Wipro, said Nirmal Bang Institutional Equities, will likely clock a dollar revenue decline of 4.5 per cent in FY24, which it said would be the weakest among its Indian peers. Wipro's higher exposure to consulting (through Capco and Rizing) may likely been one of the factors, it said.

The brokerage said while Wipro's order inflow were strong for the fourth consecutive quarter, it gave muted guidance of minus 3.5 per cent to minus 1.5 per cent QoQ CC growth for 2QFY24.

"A lack of discretionary short-term deals and weakness in BFSI, Technology & Telecom seem to be key problem areas. Wipro held on to EBIT margin of 16 per cent as the likely number in 2HFY24, despite salary hikes starting 1 December 2023 (delayed by one quarter)," Nirmal Bang said.

Nuvama Institutional Equities said Wipro’s muted Q2 performance and disappointing Q3 guidance reaffirm its troubles with converting deal-wins into growth.

"The decline in H1 (and Q3 guidance) translates to Wipro reporting YoY decline for FY24 – significantly below peers. We continue to expect Wipro to underperform peers, primarily due to its intriguingly low correlation between deal-wins and top line growth. The stock’s inexpensive valuation and high dividend yield should limit downside potential in the medium-term," it said.

The brokerage has cut its target on the stock to Rs 390 from Rs 400 earlier.

Nomura India has lowered its target price on Wipro by 5 per cent to Rs 400, as it cut EPS estimates for Wipro by 3-6 per cent. It noted that its FY24-26 EPS projections are 8-12 per cent lower than the Street estimates.

September was Wipro's third consecutive quarter of headcount decline. The fall headcounts stood at 5,051 in Q2 and 8,800 in Q1. As far as the Q3 outlook is concerned, the weak growth expectation is baking in a higher impact of furloughs compared to the previous year, along with continued challenges related to revenue conversion.

"We expect Wipro's FY24 top line growth to be one of the lowest among Tier-1 IT Services peers, with margin below the management’s medium-term guided range of 17.0-17.5 per cent. We cut our FY24E/FY25E EPS by 8.2 per cent/5 per cent to factor in weaker FY24 growth. We maintain our Neutral rating as we await further evidence of the execution of Wipro's refreshed strategy and a successful turnaround from its struggles over the last decade before turning more constructive on the stock," said Motilal Oswal Securities.

This brokerage has a target price of Rs 418 on the stock. It values the stock at Rs 375. Wipro’s turnaround process appears to have reversed gains in the past couple of years, said Kotak Institutional Equities, ading that senior executive churn has further added to the woes.

Nirmal Bang has cut its target on the stock to Rs 353 from Rs 358 earlier. Citi has cut its share price target on the stock to Rs 360 from Rs 385. HSBC and BofA Securities find the stock worth Rs 350. HSBC believes the scrip is stuck between undemanding valuation and weak business traction.

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