Wipro jumps on strong Q2 outlook, analysts say 'buy'

Moneycontrol Bureau

Wipro gained over 7 percent on Monday after a strong US Dollar revenue guidance for the second quarter, and management comments suggesting that things were looking better for the year ahead got the street excited. Several analysts upgraded the stock, while others maintained their "buy" or equivalent rating on the stock. The India's third largest software services exporter has lagged industry growth for over two years. But now things seem to be on the verge of a turnaround. Wipro's first quarter net profit from continuing operations (IT Business) rose 11 percent year-on-year (3 percent sequentially) to Rs 1,623 crore and revenue gained 5 percent from a year ago to Rs 9,735 crore. It guided for US Dollar Revenue to be in the USD 1.62-1.65 billion range in the second quarter, an expected growth of about 2-4 percent quarter-on-quarter, which got a thumbs up from the street. The company says it is seeing a pickup in large deal closures and there is a higher confidence among its clients, especially on the back of positive US macro-economic data. "Every quarter when we give guidance we typically look at deal closures in the previous quarter and what we expect to close during the quarter. And from that perspective we continue to remain fairly satisfied with what we have seen with both our order book and with the kind of deals that are coming in. Part of it has also been the macroeconomic recovery that we have seen in the US and surprisingly we are seeing parts of Europe also picking up. To that extent I remain fairly positive in terms of the quarters going forward," said TK Kurien, CEO. Also Read: Seeing pickup in US, Europe, expect stable margins: Wipro Emkay Global Financial Services upgraded the stock to "accumulate" from "hold" and said it backs revenue growth sustaining (aided partly by pick up in demand environment) with attractive valuations at 13.6 times FY14 and 12 times FY15 expected P/E, which is a 20-35 percent discount to peers Infosys and TCS. Kotak Institutional Equities also upgraded Wipro to "buy," saying the 2-4 percent revenue growth guidance for July-September was the highlight of the quarter. It has raised its earnings estimates on Wipro, taking into account the recent Rupee depreciation and the the company's first quarter results. It now expects the Bangalore-based company to report an EPS (earnings per share) of Rs 28.2 versus Rs 26.3 it had estimated earlier and US Dollar revenue is seen growing 6.5 percent this year. Another brokerage Sharekhan upgraded the stock to "hold." "An improved management commentary on the demand environment, deal flows and rate of deal wins rate has somewhere reflected in a decent 2-4 percent revenue guidance for Q2 and gives some hope for a secular revival in the earnings performance for the coming quarters," it said. Elsewhere, Nomura Financial Advisory and Securities India and Portugese investment Bank Espirito Santo also urged investors to "buy" Wipro shares. "We believe Wipro is on the path to achieving industry growth and the valuation of 11.8 times FY15 expected EPS of Rs 32.5 does not appear demanding to us," Espirito Santo said. Nomura pointed out that the guidance was strongest over the past six quarters and expects the stock to re-rate given recent underperformance.  Avendus Securities also has an "add" rating on Wipro, but is more cautious, saying at least two more quarters of strong volume growth or a recovery in telecom and hi-tech verticals could give confidence on sustainability. Wipro shares were up 5.7 percent at Rs 403.75 on NSE in noon trade. It hit a high of Rs 418 earlier in the day. Nachiket Kelkar
nachiket.kelkar@network18online.com