Shares of Wipro fell nearly six per cent on Thursday in early trade after the company reported weaker earnings for the October-December quarter.
On the National Stock Exchange (NSE), the stock tumbled almost 6 per cent in early trade. It remained unchanged during the afternoon trading session.
The domestic IT services major posted a consolidated net profit of Rs 2,969 crore for the December 2021 quarter, while saying that the demand environment continues to be “robust”.
The scrip touched a low of Rs 653.20 against Rs 691.35 at the previous close on the National Stock Exchange.
Financial Highlights
The revenue from operations grew 29.6 per cent to Rs 20,313.6 crore from Rs 15,670 crore in the quarter ended December 2020. Revenue rose 3.2 per cent on a sequential basis.
On a consolidated basis, revenue stood at Rs 20,313 crore ($2.7 billion). An increase of 3.3 per cent quarter-on-quarter (QoQ) and 29.6 per cent YoY, the company said. This was in line with the analyst estimates.
Net consolidated income for the quarter was Rs 2,970 crore ($399.1 million), an increase of 1.3 per cent QoQ.
The company’s IT services segment revenue was at $2,639.7 million, an increase of 2.3 per cent QoQ and 27.5 per cent YoY. The operating margin for IT services for the quarter was at 17.6 per cent or a decrease of 19 bps QoQ.
Additionally, the company also announced an interim dividend of Rs 1 per share and set the record date at January 24. The company intends to make the payment on or before February 5.
Future Outlook
Our Revenue estimates were cut by 1.5% for FY23/24E led by a miss in revenue in Q3FY22. Our estimates remain intact due to resilient margin performance.
We arrive at DCF based TP of 737 (implied target multiple of 24.8x P/E on FY24 EPS). Wipro is currently trading at 26.8x/23.3x on FY22/23E earnings of INR25.8/29.7 respectively with Revenue/EPS CAGR of 11.6%/16.6% for FY22-24 respectively. Maintain Buy. Any sharp sell-off in the stock should be looked upon constructively.
Should You Buy or Sell?
“Wipro’s IT services revenue grew 2.3 per cent quarter-on-quarter (Q-o-Q) to $2.64 billion in Q3 2021-22 (FY22), a tad below our estimates. IT services’ EBITM (Earnings Before Interest Taxes and Management) declined 10 basis points (Q-o-Q) to 17.6 per cent as revenue momentum. It’s operating efficiencies largely negated wage hikes and lower utilization,” Emkay Global stated in its report.
Emkay Global Financial Services has given a ‘Hold’ call for the IT firm. While “considering rich valuations” along with a target price of ₹ 700.
Motilal Oswal Institutional Equities has maintained a ‘Neutral’ stance with a target price of ₹ 720.
Comments“We marginally lower our FY22–24 (estimates) earnings per share by 1 per cent. We maintain our Neutral stance as we await further evidence of the execution of Wipro’s refreshed strategy. A successful turnaround from its growth struggles over the last decade before turning more constructive on the stock,” Motilal Oswal stated.
