Hold Wipro; target of Rs 260: Prabhudas Lilladher

Prabhudas Lilladher's research report on Wipro

The revenue performance on IT Service (0.8% QoQ CC decline) was tad below our estimates, attributed to the continued weakness in key geographies (Europe) along with a softness in few verticals (Consumer and Manufacturing). The mounting pressure on tariff was partially visible in Q4 with multiple programs kept on hold while pausing smaller and mid-size discretionary deals. The weak revenue guidance (-1.5% to -3.5% QoQ CC) bakes in the level of tariff uncertainties, which might escalate the cash provisioning or measured spending in early FY26. However, the structural weakness in the Europe region continues, although the company has invested in hiring leadership, it is yet to monetize fully. The early benefits of investments are evident through mega deal (~USD650m) win in the UK region, which is expected to ramp up by H2FY26. We believe the company’s dependency on tariff-sensitive verticals and higher proportion of discretionary would impact its growth in H1 before it stabilizes in H2. Despite impressive large wins in FY25, we believe the smallmedium size deals would continue to leak the bucket, while large transformation deals might see execution delays in the near-to-medium term. On margins, the continued effort to optimize cost and re-utilizing levers should continue in FY26 despite the weakness in topline. Considering the early softness and bleak Q1 outlook, we are baking in revenue decline of 2.0% YoY CC and a growth of 3.0% YoY CC, while anticipating margins to improve by 20bps/30bps YoY in FY26E/FY27E respectively.

Outlook

We estimate USD revenue/earnings CAGR of 0.4%/4% over FY25-FY27E. The stock is currently trading at 18x FY27E earnings. We are assigning a P/E of 19x (earlier 20x) to FY27E EPS, with a target price of Rs 260 and downgrading our rating to “HOLD” from “Accumulate” earlier.

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