1 min read.Updated: 21 Jan 2019, 10:24 AM ISTR. Sree Ram
Wipro is seeing a good deal flow. According to the management, the order pipeline is strong.
Company's revenue grew 5.1% in Q2 and 2.4% in Q1 from a year ago
Shares of Wipro Ltd gained over 10% last week after the company said its board will consider a bonus issue of equity shares. The board eventually approved a 1:3 bonus issue, and what’s more, its earnings exceeded Street estimates. The constant currency revenue growth of 7% year-on-year indicates continued recovery. Revenue grew 5.1% in Q2 and 2.4% in Q1 from a year ago.
But the 0-2% revenue growth forecast for the current quarter caught the Street off guard. This can temper expectations. The subdued guidance comes in the backdrop of strong revenue growth commentaries by larger rivals.
Encouraged by robust deal wins and order pipeline, both Tata Consultancy Services Ltd and Infosys Ltd have guided for strong growth momentum in the current quarter, with the latter even revising its FY19 growth guidance upwards by a percentage point.
Wipro is also seeing a good deal flow. According to the management, the order pipeline is strong. “The management is confident of growth recovery on the back of a) continued traction in BFSI and digital; b) robust demand environment especially for digital transformation and enterprise scale modernization services, c) steady progress in client mining," SBICAP Securities Ltd said in a note. BFSI is banking, financial services and insurance.
But recovery is not broad-based yet. The sectors which are on the recovery path—financial services, consumer and energy—continue to see acceleration. The laggards—healthcare and manufacturing—have continued to languish. The saving grace is that they account for only a fifth of Wipro’s revenue, although even then, they have been a drag on overall growth.
The uneven recovery is clouding the near-term outlook. Revenue growth in the healthcare segment is directly correlated to enrolments, which have been low. Similarly, performance in the manufacturing vertical is likely to be volatile due to restructuring.
So, even as the company delivered healthy execution and margin improvement for the second consecutive quarter, the subdued growth outlook is constraining earnings expectations. While the Wipro stock trades at a discount to larger peers, lacklustre growth is proving to be a handicap.
“Despite some improvement, Wipro continues to underperform other top-tier IT services companies on growth and valuation at 15x FY20E P/E is expensive by comparison (vis-à-vis growth expectations), keeping us on the sidelines," Jefferies India Pvt. Ltd said in a note.