Wipro shares set for rally? Q3 results much better than worst fears, say analysts

The December quarter results of Wipro Ltd were "much better than worst fears", said analysts, who said the company management provided the "hope of green shoots" in discretionary demand, pointing to double-digit sequential growth in the consulting practice but a swift demand recovery looks unlikely. For now, a couple of brokerages have price targets on the stock in Rs the 380-520 range.

For the quarter, Wipro reported a constant currency (CC) revenue degrowth of 1.7 per cent  sequentially, which was near the upper end of its degrowth guidance of 3.5 per cent to  1.5 per cent. It beat analysts estimates of 2-4 per cent degrowth.

"This performance has come about despite some low-margin client rationalisation in APMEA (impact not quantified). The performance has been much better than street’s worst fears as it was expecting ‘wider and deeper’ furlough quarter. The sharp ADR performance (up 18 per cent on 12th January 2024) is likely because of positioning," said Nirmal Bang Institutional Equities. 

Wipro Q3 results: Profit drops 12%, dividend announced; IT firm gives guidance for Q4; key highlights
 

The brokerage noted that among the four companies that have announced results thus far for 3QFY24, Wipro is the only one which has indicated green shoots in discretionary spending, where its Consulting business (Capco) saw double-digit growth in order inflow QoQ.

"It however did not indicate how much the Consulting order inflow was to take a call whether this would materially change things on the demand side. While order inflow was strong for the fifth consecutive quarter, Wipro gave a cautiously optimistic guidance of minus 1.5 per cent-0.5 per cent QoQ CC growth for 4QFY24. We are building in revenue growth at the upper end," this brokerage said. Nirmal suggested a target of Rs 384 on the stock, down 18 per cent from the prevailing level.

Kotak Institutional Equities said that the rigorous cost control enabled a margin beat of 50 basis points and took note of the positive management commentary.

"However, a YoY decline in TCV and guidance of a revenue decline at the mid-point for 4QFY24 do not reflect a quick demand recovery. EPS estimates are largely unchanged. Retain fair value of Rs 430 and REDUCE," it said.

Motilal Oswal said it expects Wipro's FY24 revenue growth rate to be one of the lowest among Tier-1 IT Services peers, with margin below the management’s medium-term guided range of 17-17.5 per cent. It maintains its '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.

This brokerage has a target of Rs 520 on the stock.

"Wipro’s muted Q3FY24 performance and Q4FY24 guidance leave much to be desired – though we do see signs of gradual improvements. Wipro is set to report a YoY decline in top line for FY24 – significantly below peers. We continue to anticipate Wipro to underperform peers, primarily due to its low correlation between deal-wins and top line growth – not helped by the continuous exits. The stock’s inexpensive valuation and high dividend yield limit the downside potential," said Nuvama Institutional Equities. This brokerage suggested a target of Rs 460 on the Wipro stock.

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