Is Wipro a Buy after Q3 results?

Shares of Wipro rose nearly 2% in intraday trade on Monday, in an otherwise lacklustre broader market, after the IT heavyweight released its earnings for the quarter ended December 31, 2022. The Bengaluru-based technology services and consulting company has reported mixed earnings, which topped D-Street estimates in terms of margins and deals, while fell short of expectations on revenue and guidance fronts. The company also declared a dividend of ₹1 per share

Wipro share price opened marginally higher at ₹394, against the previous closing price of ₹393.65 on the BSE. The IT heavyweight gained as much as 1.8% to hit an intraday high of ₹400.90, while the market capitalisation rose to ₹2.18 lakh crore. The stock currently trades 6% higher than its 52-week low of ₹372.40 touched on October 17, 2022, while it is down 40% against its 52-week high of ₹651.75 hit on January 17, 2022.

Wipro has underperformed BSE benchmark Sensex and BSE IT index in the last 12 months and six month period. The largecap IT stock has delivered a negative return of 38% in the last one year, while the BSE IT index and Sensex dropped 24% and 1.5%, respectively during the said period. In the last six months, Wipro shares fell 1.5%, while the BSE IT index and Sensex rose 10.5% each during the period of review. However, the counter has gained 5.5% in the past three months as compared to 3.4% growth in BSE IT index and 4% rise in the 30-share Sensex. In the last one month, Wipro stock climbed nearly 1%, while BSE Sensex dropped 2.5% during the same period.

For the October-December quarter of 2022 (Q3 FY23), Wipro posted a muted growth of 2.82% in its consolidated net profit at ₹3,052.9 crore, against₹2,969 crore profit in the year-ago period. The revenue from operations recorded double-digit growth at 14.35% to ₹23,229 crore versus ₹20,313.6 crore in the corresponding period last year. IT services operating margin for the quarter stood at 16.3% while operating profit stood at ₹3,760 crore.

During the quarter under review, Wipro’s total bookings stood at $4.3 billion in contract value, up 26% YoY, while the company closed 11 large deals, resulting in a contract value of over $1 billion, up 69% YoY. The attrition rate moderated 180 bps to 21.2% as compared to the previous quarter. In its guidance, Wipro expects revenue from its IT services business for the full year to be in the range of 11.5% to 12.0%, in constant currency terms.

What should investors do after Wipro Q3FY23 earnings?

Post December quarter results, the majority of experts remained bullish on Wipro shares and recommended ‘Buy’ ratings.

Domestic brokerage house JM Financial has reiterated its “BUY” rating with an unchanged target price of ₹480, a potential upside of 22% from the current market price. The agency said that the near-term softness may keep investors unexcited, but improving medium term outlook and undemanding valuations (16x FY24E) looks constructive. The agency has cut its FY24/25E USD revenue by 4.6%-4.7%, citing lower-than-expected Q3 and soft Q4 guidance.

ICICI Direct Research has upgraded rating on the stock from “HOLD” to “BUY”, with a target price of ₹455 for 12 month period, an upside of 16% from the current price. The agency said that Wipro for the first time reported a total contract value (TCV) of $4.3 billion for the quarter, which was up 26% YoY in CC terms. The company’s large deal TCV wins also remains strong with wins of 11 large deals of $1 billion.

Brokerage firm Emkay Global said that Q3 revenue and Q4 growth guidance missed its expectations, while margins came in above estimates. The agency said that revenue growth was impacted by furloughs, softness in discretionary spending, and delay in deal ramp-ups and revenue conversion because of macro uncertainties. It has recommended a Buy rating with a target price of ₹ 470 on the stock.

"Wipro has guided -0.6% to 1% QoQ CC revenue growth in IT services for Q4, below our estimates, factoring in softness in discretionary spending and slower revenue conversion due to prevailing macro uncertainties. IT services’ EBIT margin grew 120 bps to 16.3% in Q3, 80bps above our expectations, and is likely to serve as a base for margins and gradual improvement. We cut our earnings by 1% for FY23E-25E post Q3 performance," it said.