Brokerages were divided on the mixed results from Wipro and Tech Mahindra for the April-June quarter, with nearly half of them remaining bearish about the former due to its weak performance and a deferred recovery while favouring the latter based on better-than-expected earnings.
Legacy Disruption
While India’s fourth-largest IT services provider Wipro’s revenue of Rs 24,479 crore met estimates despite falling by 1.2% sequentially, most other metrics were on a decline. Its net profit fell by 4.3% sequentially, missing estimates, as did operating margins owing to pressure from wage hikes, acquisitions and AI investments. Positive growth was limited to a handful of verticals including technology & communications and the consumer segment.
Analysts said that large deals signed by the IT firm were mostly in the legacy realm which has been facing AI-led deflation as productivity gains are passed down to clients, indicating that the company was still lagging behind peers at booking newer AI-centric deals. Additionally, the management said that some deals had slipped to the second-quarter and will be closed eventually. The company improved its guidance for the second quarter to between (-)1.5% to 0.5%, but hardly projected above flat revenue growth.
On the other hand, Tech Mahindra announced healthy sequential rise in net profit and revenue by 8.2% and 4.2%, respectively, carried by a strong deal momentum. Although total revenue missed estimates, the firm surpassed estimates for margin performance with Ebit margin expanding by 60 basis points to 14.4% from 13.8% in the last quarter. This makes the current quarter the fourth consecutive one of margin expansion. Segments like manufacturing showed sustained flow of revenue with other verticals like communications and BFSI expected to anchor a quick turnaround in the next quarter. Consequently, CEO Mohit Joshi said the company is confident about reaching 15% margins in FY27.
Brokerages particularly highlighted the company’s margin beat where Ebit rose by 6.9% sequentially to Rs 2,743 crore, ahead of estimates of Rs 2,682 crore, setting it especially in contrast with Wipro’s.
Brokerage Breakdown
Nomura said that while Wipro’s Q1 revenue was in line with their estimates, weaker margins and sparse growth across verticals had led to the company offering a lower guidance than expected. “Second-quarter FY27 guidance was marginally below of our estimate,” the note said, adding that they had expected Wipro to guide for (-)1% to +1% growth on a quarterly basis. Despite this, the brokerage held on to its buy rating.
For Tech Mahindra, the brokerage retained the neutral rating but chose to raise its target to Rs 1,600, implying an upside of around 5.9%. Analysts were optimistic that the Pune-headquartered firm was on course to meet its FY27 goals, having exceeded estimates on most counts. The brokerage also shared that the company is expected to grow at a faster rate than rival large-cap IT firms in FY27-28, thereby pushing its valuation multiple to 18 times FY28 earnings from 16 times.
HSBC retained its earlier buy rating for Tech Mahindra, calling the management’s outlook encouraging. The brokerage also said that it is expected to continue improving its margins in the near future.
On the flip side, Jefferies stuck to its underperform rating for the company. Despite posting strong deal wins and robust growth in revenue and margins, the brokerage stated that it believed Tech Mahindra stock was already appropriately valued. The brokerage, however, hiked the price target for the company to Rs 1,260 from Rs 1,225.
Jefferies also assigned an underperform rating for Wipro but with a much lower price target of Rs 150 on the Bengaluru-based IT services firm. Owing to an underwhelming guidance for the second quarter, the brokerage reduced its previous FY27-29 estimates for revenue and profit by 2-5%. The brokerage also added that Wipro is expected to deliver only about 5% earnings per share CAGR over FY27-29.
Citi also kept its sell rating for Wipro stock, cutting target price further to Rs 150 from Rs 160, flagging underwhelming performance across all major geographies and business verticals