Wipro Downgraded To 'Sell' By Kotak Institutional Equities As Risks Cloud Returns
Wipro faces multiple challenges, both internal and external, which have created headwinds to growth, the brokerage says.
Wipro Ltd. has materially underperformed peers on growth in the past several years and commands a hefty multiple of 21 times the earnings-per-share estimates for financial year 2026, according to Kotak Institutional Equities.
The brokerage downgraded Wipro to 'sell' on unattractive risk-reward. It revised the target price to Rs 440 from Rs 430, implying a potential downside of 17.14% from the current price.
The stock offers little margin of safety and is "expensive". It trades at just 6–9% discount to Infosys Ltd. and HCL Technologies Ltd. despite "significantly weaker fundamentals", according to a Feb. 27 note.
On an average, Wipro has underperformed on revenue growth by 5% versus Infosys and HCL Technologies on an organic basis in the past 10 years. Underperformance has continued under the current chief executive officer's tenure, with the reduction in gap in fiscals 2021 and 2022 offset by the increase during the past couple of years, Kotak said.
Multiple Challenges
Wipro faces multiple challenges, both internal and external, which have created headwinds to growth. Attrition in key management personnel is elevated and not a good sign in later years of turnaround effort, Kotak said.
Mega deal announcements have been muted. The company has high exposure to the consulting portfolio, which did not work in its favour in the past, although it may benefit to some extent in case of a recovery," it said.
Kotak said Wipro is "susceptible to share losses in vendor consolidation events on a net basis". It estimates a modest 3.6% compound annual growth rate in dollar revenue in fiscals 2024–26.
Uncertain Path To Recovery
Revival in banking, financial services and insurance alone may not be enough to close the gap with peers. Wipro's woes in the last and the current fiscals are not limited to the BFSI alone where it has high consulting exposure, Kotak said.
Verticals other than the BFSI have also struggled, such as manufacturing where peers have done much better. The path to recovery in these verticals is uncertain, it said.
Europe is another segment where performance is weaker than expected, given high investments in the region via Capco acquisition and local leadership hires, Kotak said.
Shares of Wipro fell as much as 1.89% during the day to Rs 521.40 apiece on the NSE. It was trading 1.54% lower at Rs 523.25 per share, compared to a 0.67% decline in the benchmark Nifty 50 at 11.10 a.m.
Ten out of the 45 analysts tracking the company have a 'buy' rating on the stock, 12 recommend 'hold' and 23 suggest 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential downside of 11.8%.
