Shares of Bengaluru-based IT services provider Wipro surged over 5% on Friday, October 18, following its better-than-expected September quarter earnings, despite a cautious Q3 guidance. The stock rose 5.35% to an intra-day high of Rs 557.05 on NSE.
Wipro’s Q2FY25 Performance
IT major Wipro reported a 21% increase in net profit for the quarter ended September 2024, with earnings rising to Rs 3,209 crore compared to Rs 2,646 crore in the same period last year. However, the company’s revenue from operations stood at Rs 22,302 crore, slightly lower than the Rs 22,516 crore recorded in the corresponding quarter of the previous financial year.
Strong Deal Bookings
Wipro’s total bookings for the quarter reached $3.56 billion, with large deal bookings accounting for $1.49 billion. This represents a quarter-on-quarter growth of 28.8% and a year-on-year increase of 16.8%, measured in constant currency. The company highlighted the momentum in its large deals as a key factor in the robust performance.
Guidance for Q3 FY24
Looking ahead, Wipro provided its outlook for the IT Services segment, projecting revenue between $2,607 million and $2,660 million for the quarter ending December 31, 2024. This guidance reflects a potential sequential decline of 2.0% or flat growth at 0.0%, in constant currency terms. The guidance points to typical seasonal trends in the sector.
Operating Margin Performance
Wipro’s IT services operating margin for the quarter stood at 16.8%, reflecting a 0.3% increase from the previous quarter and a 0.7% rise on a year-on-year basis. The company’s focus on operational efficiency has contributed to the steady improvement in margins, despite the challenging revenue environment.
Brokerages on Wipro
Morgan Stanley Maintains ‘Underweight’ on Wipro
Global brokerage Morgan Stanley has retained its ‘Underweight’ rating on Wipro, setting a price target of ₹500 per share. This price target suggests a potential downside of 5% from Wipro’s Thursday closing levels.
Morgan Stanley anticipates Wipro’s underperformance will continue as its revenue growth lags behind industry peers, with little sign of near-term improvement. However, the firm highlighted positives in Wipro’s results, particularly the strong free cash flow (FCF) yield, which provides downside support for the stock.
Nomura Recommends ‘Buy’ on Wipro
In contrast, Nomura has issued a ‘Buy’ rating on Wipro, with a higher price target of Rs 680 per share. The brokerage is optimistic about the company’s strong large deal momentum in Q2, which helped Wipro exceed expectations across all metrics.
While Wipro’s Q3 guidance reflects typical seasonal weakness, Nomura sees early signs of recovery in discretionary demand. The firm also pointed to Wipro’s ability to deliver strong margin execution, despite slower revenue growth, as a key factor in its bullish outlook.
Jefferies Issues ‘Underperform’ Rating Amid Revenue Concerns
Jefferies has taken a more cautious stance, assigning Wipro an ‘Underperform’ rating with a price target of Rs 465 per share. Although Wipro’s Q2 results outpaced estimates due to higher revenue and increased other income.
Jefferies expressed concerns about the company’s broad-based revenue pressures and weak Q3 guidance. The firm noted that Wipro’s margin performance was supported by one-off gains, which are expected to decrease by 90 basis points in the next quarter.
Mixed Outlook on Earnings Growth
Despite the challenging growth outlook, Jefferies has raised its earnings per share (EPS) estimates for Wipro by 1-3%, citing higher other income. The brokerage expects Wipro to achieve a 6% EPS compound annual growth rate (CAGR) from FY25 to FY27.
Wipro’s stock is currently trading at approximately 19.2 times its FY27 earnings per share, reflecting a mixed outlook among analysts on the company’s future performance.
Stock Performance in Last One Year
Wipro shares have demonstrated positive returns across multiple time frames. Over the past month, the stock has given a commendable 2.80% return, showcasing its stability and growth potential. The last six months have seen even more impressive results, with a substantial increase of 24.50%, indicating a strong upward trend.
Year-to-date, Wipro shares have surged by 17.38%, reinforcing the stock’s positive momentum in the current fiscal year. Looking at the broader picture, the stock has delivered an impressive return of over 35.77% in the last twelve months, emphasizing its sustained growth and attractiveness to investors.
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