Guidance, in line results to boost Wipro stock: Experts

The strong management guidance and quarterly results being in line with expectations should enable Wipro to post a strong opening on the bourses on Monday concur Ankur Rudra, vice-president, institutional equities, Ambit Capital, Dipesh Mehta, IT analyst, SBI Capital Markets and Harit Shah of Nirmal Bang Institutional Equities.

Also Read: Wipro Q1 net up 3%; guides for $1.62-1.65b Q2 rev growth In an analysis of Wipro’s results for the quarter on CNBC-TV18, the experts highlight that the company’s focus on boosting productivity in dealing with various problems will be significant in the second quarter and the acceleration in revenue growth will aid the company achieve industry levels of growth.
Below is the edited transcript of the reactions on CNBC-TV18. Q: How do you read Wipro’s results and how do you expect the stock will open on the bourses on Monday? Rudra: The headline results are absolutely in line with expectations. I think the EBITD margin is down 20 basis points sequentially. Though it is ahead of what we were expecting it fell short of the street’s view. So, I would still say it is broadly in line with our expectations. What is most optimistic is the guidance of 2-4 percent. I think that is relatively strong. The stock should open strongly given the guidance. Q: What is your estimate of how strongly the stock could open given the fact that it has some valuation headroom and valuations are much lower compared to its peers? Rudra: It’s obviously very difficult to quantify these things specially given how volatile the stock’s performance has been right after results and over the course of this earnings season. Clearly one would expect it to be a bit stronger especially given how sharply it had corrected on Thursday. Q: The management guidance indicated that the company’s rate of growth would touch the industry average in the second half of this fiscal year. So, given the strong Q2 guidance, will the company be able to achieve industry growth rate in the second half? Rudra: It’s too early to take a call on that. Even with a 3-percent growth rate in the second quarter, Wipro will probably at best post a sub-10 percent growth for the full year given the flat growth in the first quarter. So, I think the management will talk about that only for FY15. Q: Any case for an upgrade in any form for Wipro based on the headline results? Rudra: I think the guidance does provide room for upgrades in terms of growth for the rest of the year and the following years. Wipro has been viewed as a turnaround story for a while but has disappointed. However, with growth this quarter being in line with expectations and strong guidance, there is scope for an upgrade Q: What do you expect the company’s dollar revenue for the entire year to be and by how much could it go higher? Rudra: We expect the company to post growth of 6-7 percent in dollar revenue for the full year after it was flat in the first quarter, about 2 percent the second quarter and followed by 1-1.5 percent for the following two quarters. If the company grows at 3 percent in the second quarter and follow it up with 2 percent in the following quarters, we will probably upgrade our expectation from 6 percent to 8-9 percent for the full year. Q: What are the other details on the deals clinched by the company? Rudra: The headline performance is flat. So, the deal wins haven’t show up this quarter. However, there is one large deal we hope to hear a bit more about from the management. But beyond that there isn’t much to go on based on the data we have right now. Q: Anything else that has caught your attention? Rudra: I think the fact that the utilization has stayed flat despite relatively muted headcount addition indicates to an extent the flat growth. But it is something that the company will focus on. Wipro has been focusing on boosting productivity this year. So, we expect to see that focus at work especially in dealing with the headwinds of wage-hikes and that will be a bit more significant in the second quarter versus first quarter. Q: Your first take on the numbers because you are also getting the guidance now. Q2 revenues are seen at Rs 1.62-1.65 billion. Could you comment on that and on the numbers that they just reported? Shah: The guidance for the next quarter is quite decent. It implies about 2-4 percent sequentially. So, that is slightly more encouraging than what has been the case for the last several quarters. The guidance has not been very positive. So, there is some sort of acceleration in revenue growth. It is the key positive takeaway from the Wipro results. As far as this quarter is concerned, by and large it was inline with the expectations so nothing too significantly above or below our estimates from this quarter. Q: The stock has corrected a bit marginally. However, in the last one or two months the stock has rallied a fair bit. So, on the back of inline Q1 and a positive Q2 guidance, where do you see the stock opening up in Monday's trade? Shah:  It will open slightly higher in light of the decent kind of guidance that they have provided for the next quarter. We still need to analyse the numbers in greater detail and the conference call is also scheduled for 6:45 pm. So, we need to see exactly what the management has to say in terms of the kind of sustainability of growth going forward. However, all said and done, you should see maybe a slightly upward opening on Monday. Q: The management last quarter had hinted at that in the second half of this fiscal year is likely to start seeing revenue growth which is similar to that of the industry. So, given the guidance that we have seen for the coming quarter, do you see Wipro coming to industry standards and no longer lagging its peers? Shah:  As far as second quarter guidance is concerned, that is probably still below what its peers like Tata Consultancy Services (TCS) or HCL Technologies are likely to record. Last many quarters they have generally delivered numbers which is more or less in the middle range of their guidance. So, if they can get that up closer to the top end of the guidance, then that would be somewhere closer to the industry level growth rates. Q: Margins have come in at 20 percent; it is slightly lower than the CNBC-TV18 poll. Are you disappointed with the margins or they are inline with your expectations. How would you read the margin performance? Shah:  Like I said, the revenue margins by and large of this quarter have been inline be it revenue, plus minus one or two percent. So, as far as this quarter is concerned you can say it is an inline quarter for us. Q: Given the fact that Wipro is seeing some amount of momentum going by the Q2 guidance, and if you assume that sustains in the coming quarters as well; the valuations of Wipro are significantly lower than its other peers like Infosys or TCS. Will Wipro start outperforming in terms of the stock price compared to its peers because of high valuation headroom? Shah:  At this point, that is the main factor that is going in Wipro's favour. So, that could be something that will work in the stocks favour. So, in the short-term there could be an outperformance relatively speaking because Infosys and TCS have run up quite significantly post their numbers. So, that may to some extent do a bit of catch up. They should get trade at a discount to TCS and Infosys but at least from a shorter term point of view you could see that outperformance sustain for a bit. Q: Your first take on Wipro's numbers? Dipesh Mehta: Quarter numbers, I think are broadly inline. Only in terms of margin it is slightly disappointing in terms of our estimates. Q: Is there a possibly of any upgrades with respect to the revenue expectations for the full year given the Q2 guidance has been quite strong? Dipesh Mehta: Q2 guidance is around 2-4 percent. I think it is also broadly inline with what we expected them to guide for. We would like to hear from management if we find something incremental or positive then maybe we might revise, but as of now it appears numbers are broadly inline. Q: Your expectations of where the stock is headed post these numbers? Dipesh Mehta: We have a hold rating on the stock. I don’t think number per se would drive any meaningful stock reaction, but I think management commentary – what they guide for future, because Q1 is broadly inline. Incremental positive was missing from Q1 numbers, but guidance yes 2-4 percentage gives some optimism and management commentary might add to whether they guide incrementally positive or they maintain their overall stance. So, I think more people would like to understand what they say rather than what Q1 they already delivered.