Wipro shares down 14% from 52-week high; Motilal Oswal suggests share price target of Rs 360

Wipro, which has been the second-worst performing Nifty stock in the last one year, has downside potential, as the deal conversion remains a challenge with large deal timelines witnessing extensions and creating near-term leakages, said brokerage Motilal Oswal Securities in its latest note on the Tier I IT firm.

The brokerage said selective pockets – BFS, Hi-Tech, Retail and Consumer – are exhibiting signs of caution in their technology spends due to lingering inflation and weak consumer spending. Conversely, demand in Telecom appears positive, where clients are reprioritising spends to monetize their 5G investments.

"Additionally, Healthcare, Utilities and Automotive are showing strong resilience amid the adverse macro situation. Although the company has signed 55 large deals with an overall TCV of $3.9 billion (+66.5% YoY), the deal conversion remains a challenge," it said.

The brokerage remained 'Neutral' on the stock as it awaits further evidence of Wipro's refreshed strategy execution and a successful turnaround from its growth struggles over the last decade before turning more constructive on the stock.

Wipro's FY23 annual report highlighted that enterprises are doubling down on reprioritising spends in to achieve operational excellence and cost takeout programs, while strongly focusing on reducing discretionary spends.

Wipro's trailing three-years payout ratio remained at 46.7 per cent in FY23, which has been in line with its capital allocation policy of returning at least 45-50 per cent of net income for a period of trailing three years. FY23 Net cash & cash equivalent stood at Rs 27,300 crore, translating into 13.6 per cent of its market capitalisation.

Motilal Oswal Securities projected Wipro's FY24 organic growth to be one of the lowest among Tier-1 IT Services companies, with margin below the management’s medium-term guided range of 17.0-17.5 per cent.

It has a target of Rs 360 on the stock, valuing it at 14 times FY25E EPS. The target suggests a 5 per cent potential downside for the stock. The stock is already down 14 per cent from its 52-week high level.

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