Wipro shares surge on Q1FY20 results; should you buy, sell or hold stock?

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Published: July 18, 2019 12:13:43 PM

Wipro shares surged on Thursday after the IT company reported Apr-Jun results yesterday. Its shares rose more than 3 per cent to Rs 268.85 per share in the early trade on Thursday.

wipro Q1 profitWipro shares surged on Thursday after it reported quarterly results on Wednesday

Wipro shares surged on Thursday after the IT company reported Apr-Jun results yesterday. Its shares rose more than 3 per cent to Rs 268.85 per share in the early trade on Thursday. Wipro reported a 12.5 per cent rise in consolidated net profit at Rs 2,387.6 crore for the April-June quarter and guided for up to 2 per cent sequential revenue growth for the July-September period. Taking stock of its quarterly earnings, Reliance Securities has maintained HOLD on the stock. It has revised its target price downwards to Rs 270 per share. 

“Downwardly revising our target PE multiple to 14x (from 15x earlier) to factor in slower revenue growth, we maintain our HOLD recommendation on the stock with a revised Target Price of Rs 270 (from Rs 300 earlier),” Reliance Securities said in a report. 

Wipro’s CC or constant currency revenue declined by 0.7% QoQ, while USD revenue fell by 1.8% QoQ to US$2.03 billion. The company has guided for revenue growth of 0-2% QoQ in 2QFY20E, largely in-line with expectations. However, given the low sequential base, Reliance Securities believes the revenue guidance is unimpressive, particularly considering that the second quarter is typically seasonally strong quarter for Wipro, it said in a report.

Motilal Oswal Financial Services has lowered Wipro’s revenue estimate by 2.7% for FY20/21 post the results. Its CC revenue growth estimate for FY20 now stands at 5% versus 6% earlier. Wipro’s revenue growth performance continues lagging peers due to the impact from the Affordable Care Act in the US, manufacturing vertical in general and softness in continental Europe – all of which are specific to the company. “We thus do not see a significant change to current valuation multiples – we discount FY20/21 earnings by 17/15.6x. Our TP of INR270 discounts forward earnings by 15x. Maintain Neutral,” it added. 

Wipro is struggling to achieve any degree of consistency. The timing of the recovery remains key and revenue growth of Wipro is never broad-based. The company’s revenue growth has been below 1% (Q/Q CC) in eight of the past thirteen quarters, suggesting that growth momentum is difficult to predict. Prabhudas Lilladher expects 4.5% & 7.3% USD revenue & EPS CAGR for FY19E-FY21E respectively and values Wipro at 14.5x Mar-21 earnings to arrive at a changed target price of Rs.238. The brokerage firm has maintained Reduce on Wipro stock.

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