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Business News/ Markets / Mark To Market/  Is Wipro's turnaround story losing steam?
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Is Wipro's turnaround story losing steam?

Bluechip IT stocks have corrected in recent months with the Nifty IT index declining 21% so far in this calendar year, while Wipro shares have fallen 31%.

Wipro fell 2.5% on the NSE in Monday's early trade, reacting to its earnings. (Bloomberg)Premium
Wipro fell 2.5% on the NSE in Monday's early trade, reacting to its earnings. (Bloomberg)

Large-cap IT company Wipro Ltd's March quarter earnings were disappointing. Shares of the company fell 2.5% on the NSE in Monday's early trade, reacting to its earnings.

In Q4FY22, its IT services revenue grew 3.1% in constant currency (CC) terms sequentially, missing the consensus estimate of 3.4%. Ebit margin declined 60 basis points sequentially to 17%. Ebit is short for earnings before interest and tax. One basis point is one-hundredth of a percentage point. Analysts at JM Financial Institutional Securities Ltd note that Ebit margin is the lowest since 1QFY19 levels were impacted adversely by the dilutive impact of acquisitions made by Wipro through the past 18 months.

For Q1FY23, Wipro has guided for 1-3% sequential CC growth in IT services revenue. This guidance does not include contributions from its recent Rizing acquisition. The company's management is confident of sustaining revenue growth momentum and achieving double-digit growth in FY23.

However, analysts do not share this optimism. In fact, they note that Q1FY23 revenue growth guidance is not only lower than 2-4% sequential revenue growth guidance for past two quarters but is also below consensus expectations.

Further, some of them are also worried that Wipro's turnaround story may be losing its steam. Note that bluechip IT stocks have corrected in recent months with the Nifty IT index declining 21% so far in this calendar year; Wipro shares have fallen 31%.

"Under-performance stems from increasing doubts around the turnaround story after two quarters of average QoQ growth in both 3Q and 4Q in FY22," said analysts at Nirmal Bang Institutional Equities. Besides, the ‘profitable growth’ promise has been dented with margins being reset downwards a few times, said the domestic brokerage house in a report dated 30 April.

Wipro's margins, in the near-term, are expected to be lower due to supply-side challenges and planned investments. However, in the medium term, the management sees it sustaining at 17-17.5%.

Sharing a similar worry, analysts at Motilal Oswal Financial Services Ltd have lowered the stock's FY23/24 earnings per share estimate by 1.3%/1.6%, respectively. The brokerage house said that it would await further evidence of the execution of Wipro’s refreshed strategy, and a successful turnaround from its growth struggles, before turning more constructive on the stock.

Investors would reckon that shares of Wipro saw a sharp up move and re-rating after Thierry Delaporte became its CEO amidst the pandemic. Under Delaporte, Wipro has been boosting its growth mainly via acquisitions.

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Published: 02 May 2022, 10:27 AM IST
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