Analysts Cheer Wipro’s Deal Wins But Cautious On New Buys; Stock Gains

Wipro Ltd. became the top performer on the Nifty 50 as analysts cheered large deal wins by the software services exporters and broad-based revenue growth.

The IT company’s revenue rose 3.67% sequentially to Rs 16,245 crore in the three months ended March 2021, prompting it to term this as the best fourth quarter in 10 years. It also expects revenue to grow 11-13% in the financial year 2021-22. For the ongoing April-June quarter, it expects 2-4% growth, excluding new acquisitions Capco and Ampion.

Wipro’s net profit remained flat over the preceding quarter, and margin contracted, but they beat estimates.

The analysts, however, see the acquisitions Capco and Ampion to increase costs for Wipro, hurting margin in the near term.

Of the 47 analysts tracking the company, 21 have a ‘buy’ rating, 16 suggest a ‘hold’ and 10 recommend a ‘sell’, according to Bloomberg data. The average of the 12-month consensus price target implies an upside of 2.3%. The stock gained as much as 9.5%, the biggest single-day gain since Feb. 24, to Rs 471.75 apiece as of 10:50 a.m. on Friday, and is up for the second straight day.

Here’s what analysts have to say about Wipro’s fourth-quarter results:

Jefferies

• Maintains ‘underperform’ rating with a price target of Rs 380 apiece.
• Revenue growth was broad-based across markets and verticals.
• Large deal ramp-ups and acquisitions should drive a 13% revenue CAGR over FY21-23.
• Acquisition of Capco and Ampian will dilute margins further to 17.5-18% levels from 19.4% levels reported in FY21.
• Wage hikes and acquisitions could keep earnings per share growth low at 7% CAGR over FY21-23.

HSBC Global Research

• Maintains ‘hold’ rating and raises price target to Rs 465 apiece from Rs 440.
• Earnings a fairly strong performance amid management changes and very aggressive M&A.
• Large deal wins and client mining are both looking up.
• M&A integration and management stability is the key.
• Raises FY22 EPS estimates by 6.5% over expectations of better margin visibility despite near-term costs from the integration of Capco and other investments.
• A few more quarters of sustainable growth needed to drive valuations upwards.

Motilal Oswal

• Maintains ‘neutral’ rating with a price target of Rs 455 apiece.
• Expects refreshed strategy of new management to make the organisation leaner.
• Growth-focussed approach will aid growth over medium to long term.
• Current restructuring and investments will take a toll on near-term margin.
• Expects margin to remain range-bound as gains from operational efficiency are diluted.
• Lowers FY22E EPS estimates by 6% based on upcoming margin headwinds and EPS impact from Capco acquisition.
• Remains neutral on fair valuations and awaits execution on refreshed strategy.

Emkay

• Maintains ‘hold’ rating with a price target of Rs 450 apiece.
• Likes broad-based revenue growth, better-than-expected guidance for Q1 and healthy deal intake.
• Revenue acceleration and strong operational rigor (utilisation, offshoring, employee pyramid, etc.) would support margins
• Lowers FY22 earnings per share estimate by 1%, factoring in Q4 performance, Ampion acquisition and robust deal signings.
• Prefers to wait for clear signs of improvement in operating metrics considering poor execution track record.