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Last Updated : Oct 14, 2020 02:18 PM IST | Source: Moneycontrol.com

What should investors do with Wipro post-Q2 earnings: buy, sell or hold?

The company's consolidated profit increased to Rs 2,465.7 crore for the quarter compared to Rs 2,390.4 crore in the previous quarter.

Wipro share price shed 6 percent in the early trade on October 14, a day after the company announced its second-quarter earnings.

The company posted a 3.2 percent sequential growth in consolidated profit for the quarter ended September 2020, while IT services segment earnings were ahead of analysts' estimates.

The company also announced a share buyback of Rs 9,500 crore.

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Also Read - Wipro Q2 profit up 3.2%, guidance for Q3 IT services revenue growth at 1.5-3.5%

Consolidated profit increased to Rs 2,465.7 crore for the quarter, compared to Rs 2,390.4 crore in the previous quarter. Consolidated revenue increased 1.2 percent sequentially to Rs 15,096.7 crore.

Here is what broking houses have to say about the stock after the earnings announcement:

KRChoksey

Wipro’s 2QFY21 performance and 3QFY21 outlook reflect a healthy underlying business environment. A key positive takeaway from the IT major’s 2QFY21 report is healthy growth across most verticals with the exception of energy and technology (25.4 percent of revenue). Thus, nearly 75 percent of the revenue has shown healthy traction, driving increasing confidence on sustainability of improving revenue growth.

The share buyback also reflects continuing initiatives on cash return to shareholders. KRChoksey would prefer to see greater action on the M &A front.

It upgrades Wipro to "accumulate" from "sell" with a revised target price of Rs 420 (Rs 307), as it raises FY22E/FY23E EPS by 3-4 percent and raises the target multiple on the stock to 20x from 15x, given better-than-expected revenue visibility.

Sharekhan

Sharekhan revised its earnings estimates for FY2021E/FY2022E/FY2023E factoring in better-than-expected revenue growth guidance for Q3FY2021 and commentary on demand improvement across verticals. The new CEO, Thierry Delaporte, outlined a five-point strategy for building growth engines for the company.

Given the acceleration in spending on cloud and cloud-related technologies, it believes that Wipro's growth trajectory would improve from its historical levels in FY2022/FY2023. It believes there would be high probabilities of 100 percent acceptance of its buyback of 4.16 percent of paid-up equity, taking the cue from the company’s previous buyback programs.

The broking house is assigning a higher target multiple to Wipro that yields a revised target price of Rs 450. Hence, it upgrades the rating from "hold" to "buy" on Wipro.

ICICIdirect:

ICICIdirect expect Wipro to witness healthy revenue growth in coming years mainly led by healthy traction in deals, growth focus of new CEO, acquisition of new logos and traction in digital revenues.

Further, it believe that improving growth along with cost rationalisation will keep margins buoyant. This, coupled with healthy capital allocation policy and improving tech spends on digital technology, prompt to maintain buy recommendation on Wipro with a target price of Rs 435 (19x FY23E EPS).

Dolat Capital

Given strong Q2 performance, positive commentary and re-introduced guidance, Dolat Capital has upgraded the topline (IT Services in USD terms) estimates by 1.7 percent / 1.7percent for FY21/FY22. It has increased the margin estimates by ~130bps/123bps for FY21/FY22 and introduce FY23 numbers with 6.7 percent growth in topline.

Given sustained underperformance it maintains the "sell" rating with the target price of Rs 320 (valued at 16x FY23E EPS of Rs.20).

Motilal Oswal

Motilal Oswal upgraded its FY21/FY22E EPS by 3 percent/2percent, largely led by a revised revenue outlook based on guidance. It maintains a neutral stance as it awaits further evidence of the execution of Wipro’s refreshed strategy and a successful turnaround from its growth struggles over the last decade before turning more constructive on the stock.

Prabhudas Lilladher

Prabhudas Lilladher increased its estimates by average 6 percent for FY22/23 which were led by strong guidance, sustainable margin performance along with growth, strong demand trend and strong exit rate in FY21.

It has estimated revenue growth of 8 percent/6.5percent in FY22/23 and increased margin estimates as the CEO said margins will be maintained along with gaining market share. Maintains buy.

Citi | Rating: Downgrade to neutral | Target: Rs 400

The sharp re-rating has limited the upside. The company’s revenue was slightly ahead of expectation and the margin was inline. The focus will shift to the initiatives and execution, under the new CEO. Citi raised estimates by 0-2 percent and target multiple to 20x (18x), CNBC-TV18 reported.

Goldman Sachs | Rating: Sell | Target: Raised to Rs 277 from Rs 265

Due to tight cost controls, the company has reported a beat at EBIT level. The topline growth was largely in-line with consensus expectations, while guidance for Q3 at 1.5-3.5% QoQ growth, largely as expected.

The strategy for future business growth doesn’t seem too different. The company continues to have the weakest growth profile among its peers.

Once the buyback support is behind, the stock should re-rate lower. The company is expected to continue to lose market share to its larger peers, reported CNBC-TV18.

CLSA | Rating: Maintain underperform | Target: Raised to Rs 370 from Rs 320

The growth has recovered but bridging the gap versus peers could take time. Its margin is stable and working capital management is impressive.

The recovery appears more a consequence of macro demand drivers. The impact of the new CEO’s strategy will be visible only in the medium-term. CLSA sees better plays elsewhere (HCL Tech & Tech Mahindra), reported CNBC-TV18.

JPMorgan | Rating: Underweight | Target: Raised to Rs 270 from Rs 250

The Q2 was a clean beat, while Q3 guidance a strong one. The strong guidance in soft quarter signals improving execution.

JPMorgan has upgraded revenue estimates by 2%/4%/5% for FY21/22/23 and also upgraded margin estimates by 18/35/55 bps For FY21/22/23. The stock builds in a structural recovery, while remain underweight due to high expectations, reported CNBC-TV18.

Kotak Institutional Equities | Rating: Add | Target: Rs 380

The company reported good yet in-line earnings for Q2. The revenue growth guidance for Q3 surprised positively. The new CEO outlined a set of priorities that seemed reasonable.

Execution will entail changes that will be known over the coming months. After a strong & partly buyback-fuelled rally, the upside will be modest. It raised FY21-23 EPS estimates by 6-11%, reported CNBC-TV18.

Angel Broking

Wipro reported a 3.7 percent qoq growth in IT services revenues to $1.99 billion which was slightly ahead of street estimates, Jyoti Roy - DVP- Equity Strategist at Angel broking said. In rupee terms, consolidated revenue increased by 1.4 percent qoq to Rs 15,115 crore while gross profits increased by 0.7 percent qoq to Rs 4,576 crore. Gross margins contracted by 20bps qoq to 30.3 percent, which could be attributed to rupee appreciation during the quarter, Roy said.

Consolidated operating profit for the quarter was up by 4.4 percent qoq while consolidated operating margins were up by 55bps qoq to 18.6 percent. Operating margins for the IT services business improved by 20bps qoq to 19.2 percent. Net profit for the quarter was up by 3.2 percent qoq to Rs 2,466 crore.

The management's revenue growth guidance of 1.5 percent-3.5 percent for IT services in Q3FY2021 is ahead of street estimates and reaffirms continued improvement in the demand environment. The company also announced a buyback of upto Rs 9,500 crore at a price of Rs 400 per share which is at a premium to the current market price.

At 0919 hrs Wipro was quoting at Rs 357.20, down Rs 18.75, or 4.99 percent on the BSE.
First Published on Oct 14, 2020 09:40 am
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