Brokerages turn cautious on Wipro shares after weak Q3 earnings guidance

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Updated: October 18, 2017 9:58:59 AM

Brokerages such as Phillip Capital and Kotak Securities have turned cautious on the shares of Wipro Ltd, after the company toned down revenue guidance for Q3FY18 to 0-2%, after posting a better than expected net profit.

Wipro, revenueBrokerages such as Phillip Capital and Kotak Securities have turned cautious on the shares of Wipro Ltd, after the company toned down revenue guidance for the third quarter. (Image: Reuters)

Brokerages such as Phillip Capital and Kotak Securities have turned cautious on the shares of Wipro Ltd, after the company toned down revenue guidance for Q3FY18 to 0-2%, after posting a better than expected net profit. Analysts said the downward revision reflects the subdued demand environment though the Wipro management attributed it to seasonal holidays during this period. Despite the impact of wage hikes, the company reported a 5.2% sequential increase in net profit to Rs 2,190 crore for quarter ended 30th September 2017, boosted largely by productivity improvements in utilisation and automation.

Phillip Capital says that a weak Q3 earnings guidance means that the company will fail to match industry growth rate in FY18. Phillip has a sell rating on the shares with a target price of Rs 220. The previous sell target was Rs 210. Wipro shares were trading at Rs 293.95 up by more than 1.41% since the previous close. Notably, the shares have returned more than 22% since January, as compared to BSE IT returns of 2% in the same period.

Kotak Securities says that the Q3 FY18 guidance does not provide any meaningful acceleration. Kotak Securities has a reduce rating on the stock with a target price of Rs 265, the previous target was Rs 265. Kotak Securities observed that weak healthcare and communications sector dragged Wipro’s overall growth. “EBIT margin increased 50 basis points, in line with our estimates,” the research firm said in a note.

Wipro’s IT services revenue stood at Rs 13,169 crore, a sequential growth of just 1% while in constant currency terms, the increase was a mere 0.3%. In dollar terms, revenues for Q2FY18 were up 2.1% sequentially. The country’s third-largest software services exporter reported operating profit margins (for IT services) of 17.3%, up 50 basis points over the June quarter, with the management indicating they would remain in this narrow band.

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