The country's third largest IT services firm Wipro on Friday reported quarterly earnings that came out ahead of analyst estimates, with dollar revenue growth at 1.3 percent being higher than peers TCS (flat) or Infosys (0.8 percent).
But while earnings were a positive surprise, it may be too soon to say the company has turned around the corner, according to Vibhor Singhal, IT Analyst with Phillip Capital.
Wipro shares have under-performed peers and the broader market over the past one year, after slowing revenue growth has seen it lag other leading IT firms.
In an interview with CNBC-TV18, Singhal said he would need to see a few quarters of sustained revenue growth and high guidance to turn bullish on the stock.
"In the past one year, they have delivered on deals flow. But it is not translating into strong revenue growth," he said. "That probably shows that maybe there are strong execution issues or it is losing existing business to competitors."
Below is the transcript of Vibhor Singhal’s interview with Ekta Batra and Anuj Singhal on CNBC-TV18.
Ekta: It has been a good quarter for Wipro, which generally it is for Q3 for the company. Do you think it is sustainable though?
A: Wipro has definitely delivered very strong numbers in this quarter, much ahead of TCS and Infosys both but I am not sure of the guidance that they have given for next quarter, is in line with the strong results this quarter or with the deals that we have seen. So, Wipro has also been reporting very strong deals over the year but the guidance for the next quarter that is around 1, 2, 3 percent dollar revenue growth remains a bit lackluster. We would have expected a much stronger guidance from them. So, not too sure if this kind of performance that they have delivered in this quarter is sustainable for them as yet.
Anuj: Wipro has been a rank under performer. Even after today’s rally it is just up six or seven percent over the last one year, even lower than say TCS and Infosys. Do you think that would still remain the case going forward? It is just an aberration that we are seeing today or do you think it can end the under performance?
A: I am not too sure if Wipro has turned the corner yet. You still need few more quarters of sustained performance from the company. We need to understand that Q3 is anyways a traditionally stronger quarter for Wipro than it is for TCS and Infosys.
So, there is no doubt that the company has delivered strong numbers this quarter even in spite of being a strong quarter, but you need more sustained performance from the company and better guidance going ahead for the re-rating to happen from current levels. It is just one time reaction that you are seeing in the stock today but overall I do not think so you are looking at the company turning the corner yet.
Ekta: What is your call on this stock and when would you be convinced about sustainability?
A: If I get a couple of quarters of sustained growth from the company and guidance as well, because one thing that they definitely have delivered in the past one year is the deals flow. They have signed large number of deals and large number of large deals across USA as well as Europe.
So, those deals flows definitely have been coming but even if that is not translating into strong revenue growth, that probably shows you that maybe there are strong execution issues or maybe the company is losing large part of its existing business to competitors. So, once that ends and company is able to provide a strong guidance for the next quarters or is able to deliver consistently, that is when probably I would want to turn positive on this stock.
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