Wipro shares decline after Q1 profit slumps 21%. Should you buy, sell or hold the stock?

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Wipro

Wipro share price fell in the early trade on July 21 a day after the company announced its June quarter earnings.

Wipro on July 20 reported a 20.93 percent year-on-year (YoY) decline in its consolidated profit after tax (PAT) at Rs 2,563.6 crore for the quarter ended June as compared to a PAT of Rs 3,242.6 crore recorded during the same period last year. On a sequential basis, the profit fell 16.96 percent.

The consolidated total revenue for the Bengaluru-based IT services company rose 15.51 percent on-year to Rs 22,001 crore as against a revenue of Rs 19,045 crore registered in the year-ago quarter. On a sequential basis, the revenue is higher by 2.98 percent.

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Here is what brokerages have to say about stock and the company after the June quarter earnings:

Jefferies

Brokerage house Jefferies has kept ‘underperform’ rating on the stock with a target price Rs 360 per share

The 1QFY23 missed the estimates, with 200 bps QoQ margin decline being the key disappointment.

The deal TCV was at $1.1 billion, strong net hiring and healthy Q2 guidance of 3-5 percent QoQ were encouraging.

The lower estimate by 1-6 percent and expect Wipro to deliver a 6 percent EPS CAGR in FY22-25.

The weak EPS growth is a high risk of cuts to consensus estimates, while heavy reliance on acquisitions should weigh on stock, reported CNBC-TV18.

Goldman Sachs

Foreign broking firm Goldman Sachs has kept ‘sell’ rating on the stock with a target price Rs 374 per share.

The Q1 was below on wide margin miss and kept sell call as street is yet to bake in lower margin.

The broking house largely maintained weak revenue growth outlook over FY22-25e and forecast EBIT margin of 16 percent, while reduce FY23-26e EPS estimates by 3-5 percent.

The management guided that margin have bottomed out & would try to improve hereon, reported CNBC-TV18.

Credit Suisse

Brokerage house Credit Suisse has kept ‘neutral’ call on the stock and cut the target price to Rs 415 per share from Rs 530.

The earnings were miss on a weak operating margin with strong Q2 revenue guidance, mainly on acquisitions.

Credit Suisse cut FY23-25E EPS by 11-13 percent and believe Q2 growth guidance includes Rizing & Convergence acquisition impact of 1.3-1.5 percent.

Wipro won 18 large deals in Q1, TCV of $1.1 billion. The macro headwinds should impact growth beyond FY23, reported CNBC-TV18.

Nomura

The broking house Nomura has maintained ‘neutral’ rating on the stock while cut target price to Rs 440 per share.

The margins were a miss, while growth outlook remains good.

The margin recovery likely to be gradual as deal wins provide comfort on growth outlook.

The Q1FY23 performance was a miss, and cut FY23-24F EPS by 7-10 percent, reported CNBC-TV18.

Sharekhan

Though the company’s turnaround journey has been progressing well in certain pockets, supply side pressures and higher exposure to discretionary spending after recent acquisitions (CAPCO, Rizing, among others) would affect earnings growth amid an economic slowdown.

We expect Wipro to report USD revenue/earnings CAGR of 10 percent/5 percent over FY2022-FY2024E. At CMP, the stock trades at an expensive valuation of 19x/17x its FY2023/FY2024 earnings estimates. We believe the company has limited margin levers to offset headwinds in next couple of quarter. Hence, we maintain a ‘hold’ rating on Wipro with a price target (PT) of Rs 460.

Motilal Oswal

Though Wipro had a strong 1QFY23, with strong bookings and pipeline, it expects its FY23 organic growth to be one of the lowest in Tier-I IT Services, along with margin below the medium-term guided range of 17-17.5 percent. Moreover, its capital allocation has started suffering due to elevated investment in its Consulting capability. This should impact its FY23 payout as well.

We lower our FY23/FY24 EPS by 7 percent/6 percent to factor in the margin miss. We maintain our Neutral stance as we await: a) further evidence of the execution of WPRO’s refreshed strategy, and b) a successful turnaround from its growth struggles over the last decade before turning more constructive on the stock. Our Target Price implies 16x FY24E EPS.

At 9:16am, Wipro was quoting at Rs 404.80, down Rs 7.40, or 1.80 percent on the BSE.

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