Wipro share climbs 3% as Q1 margin beats estimates; brokerages bearish, cut target price

Global brokerages remained bearish on the stock and said the company may not be able to achieve FY20 revenue target given weak start to earnings

July 18, 2019 / 03:35 PM IST
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Wipro shares rallied 3 percent intraday on July 18 despite global brokerages remained bearish on the stock and slashed price target after subdued growth in Q1FY20, as operating profit margin in Q1 beat analyst estimates.

The stock has rallied 26 percent in the last one year. It was quoting at Rs 268.00, up Rs 8.30, or 3.20 percent on the BSE at 1014 hours IST.

The IT company's IT services business missed analyst expectations falling 1.6 percent sequentially to Rs 14,351.4 crore.

IT services revenue in dollar terms fell 1.76 percent sequentially to $2,038.8 million in Q1FY20 while after adjustment with respect to divestment, dollar revenue fell 1.3 percent and constant currency revenue skid 0.7 percent QoQ.

On guidance front, the IT company expects IT services dollar revenue in the range of $2,039-2,080 million for July-September quarter, a growth of 0-2 percent over June quarter which is slightly below street estimates.


Global brokerages remained bearish on the stock and said the company may not be able to achieve FY20 revenue target given weak start to earnings.

Brokerage: Jefferies | Rating: Underperform | Target: Cut to Rs 225 from Rs 245

Topline in the first quarter disappointing as it reported QoQ decline of 1.2 percent in constant currency. On top of that, Q2 growth guidance was tepid at 0-2 percent despite low Q1 base.

We cut revenue and earnings estimates over FY20-21 and expect growth underperformance to continue. We believe it is over-valued at 16/15x FY20/21 estimated P/E.

Brokerage: Citi | Rating: Sell | Target: Cut to Rs 250 from Rs 255

The company reported another weak quarter, with revenues declining 1.3 percent sequentially. BFSI revenue sluggishness is a cause of worry as it was a growth driver in FY19.

Wipro lags peers and will likely end up with mid-single-digit revenue growth in FY20. We trim FY20/21 EBIT estimates by 2-5 percent.

Brokerage: BNP Paribas | Rating: Hold | Target: Cut to Rs 270 from Rs 280

The second-quarter margin could be affected by a two-month impact of wage hikes. Recurring FY20 revenue growth may weaken compared to FY19.

We cut FY20-22 EPS estimates by 2-3 percent.

Brokerage: Nomura | Rating: Reduce | Target: Cut to Rs 235 from Rs 260

We see no signs of turnaround visible and Wipro is unlikely to achieve its FY20 guidance of revenue growth ahead of FY19.

Commentary across verticals remained tepid and the company may continue growing slower against peers at 4 percent dollar revenue CAGR over FY19-22.

We see margin risks after the recent improvement as margin levers are being exhausted and expect IT services EBIT margin to fall to 16.3 percent by FY22 versus 17.8 percent in FY19.

Brokerage: Credit Suisse | Rating: Underperform | Target: Rs 240

We moderated growth estimates for FY20/21, leading to a 2 percent EPS estimates cut. The company continue to significantly underperform peers on growth and catch-up remains elusive as of now.

Company's constant currency revenue declined 0.7 percent QoQ, which were at the lower end of the guided range.

The second quarter constant currency revenue guidance of 0-2 percent is once again soft and below estimates.

Disclaimer: The views and investment tips expressed by brokerages on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: Jul 18, 2019 10:51 am

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