Wipro appears to be on shaky ground as analysts are increasingly turning bearish on the stock. According to Moneycontrol's Analyst Call Tracker, Wipro saw a notable surge in downgrades last quarter, with 'Sell' calls rising to 23 from 19. Meanwhile, 'Buy' calls reduced to just 7 from 12. The 'Hold' calls held steady at 13.
A key factor in the downgrades is Wipro's slower-than-expected revenue growth, as highlighted by several brokerages. Despite Wipro's 4.6 percent rise in Q1FY25 net profit to Rs 3,003 crore, its consolidated revenue dropped 3.8 percent year-on-year to Rs 21,964 crore. The Health, Energy, Natural Resources, and Manufacturing verticals saw a sequential degrowth of 0.7-6.5 percent in Q1FY25.
As per Kotak Institutional Equities, Energy, Utilities, and Manufacturing will continue to remain vulnerable points for the company in the September quarter as well. BNP Paribas echoed this view, stating, "We think a weak start to FY25 and a poor 2QFY25 outlook will keep Wipro's revenue growth underperformance elevated relative to its larger peers."
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Flat outlook weighs on investor sentiment
Looking ahead, most brokerages anticipate Wipro's revenue to remain flat for the September quarter, with some uplift from large deal ramp-ups.
In the quarter ended June, Wipro revised its revenue guidance for the Q2 FY25, suggesting a potential sequential decline of 1 percent or a slight growth of up to 1 percent (in constant currency terms). However, Citi Research had warned that this guidance fell short of investor expectations. The brokerage had a 'Sell' call on the stock with Rs 495 as the target price.
Adding to the pressure were EBIT margins. Most brokerages believe that while operational efficiencies may offer some relief, wage hikes might squeeze margins.
Also Read | Wipro Q2 preview: Demand environment, guidance among 5 themes to watch out for
A glimmer of hope: AI and large deals
Despite the downgrades, some analysts see Wipro's large deal wins and AI-related projects as areas that could potentially turn the tide for the company. Wipro has been investing heavily in its Generative AI (GenAI) initiatives.
"Wipro is training employees in AI at multiple proficiency levels," noted Kotak Institutional Equities after a discussion with Wipro's CEO, Srini Pallia. "Wipro's focus is on using AI in service delivery, creating AI-specific business streams, and ensuring responsible and secure use cases."
Additionally, tailwinds such as the depreciation of the rupee and a tight leash on overall costs offer some hope.
With the company's board meeting scheduled on October 17 to discuss the potential issuance of bonus shares, shares of Wipro gained over 4 percent on October 14, trading at Rs 550. As Wipro prepares to announce its Q2 results, also on October 17, all eyes will be on its growth guidance for FY25 to gauge whether recovery can be expected soon or not.
In the July-September period, Wipro's shares gained over 5 percent, underperforming the Nifty 50 index, which rose by 7.5 percent. However, Wipro managed to outperform the IT index, which fell 2 percent over the same period.
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