Should you invest in Wipro shares after Q1 financial performance?

IT major, Wipro shares will be in focus on Thursday's trading session after the company missed analysts' estimates in the first quarter of FY23. The company posted a nearly 21% decline in consolidated PAT, while revenue climbed 18% year-on-year. Its attrition rate slipped marginally compared to the preceding quarter, however, the company hired 15,446 employees in the three months. Further, the company's EBIT margin was under pressure during the period. Wipro expects 3-5% sequential growth in IT services revenue for Q2 of this fiscal.

Wipro announced a consolidated net profit of ₹2,563.6 crore compared to ₹3,242.6 crore in the same period last year. Sequentially, the company's PAT dropped by 16.96%.

Meanwhile, consolidated revenue was at ₹21,528.6 crore in Q1FY23 up by 17.9% from ₹18,252.4 crore in Q1FY22, and higher by 3.2% from ₹20,860 crore in Q4FY22.

In dollar terms, IT Services Segment revenue stood at $2,735.5 million, an increase of 13.3% yoy. Non-GAAP constant currency IT Services segment revenue increased by 2.1% qoq and 17.2% yoy. IT services operating margin for the quarter was at 15.0%, a decrease of 200 bps qoq.

Further, as of June 30, 2022, Wipro's employees headcount is 258,574 compared to 243,128 employees as of March 31, 2022. The company's attrition rate is at 23.3% in Q1FY23 lower than 23.8% in Q4FY22.

Wipro expects revenue from its IT services to be the range of $2,817 million to $2,872 million in Q2FY23 - translating to a sequential growth of 3% to 5%.

Wipro announced its Q1 result after market hours, and investors had a bullish sentiment during Wednesday's session. On BSE, Wipro shares have closed at ₹412.20 apiece up by 1.63%. The company's market valuation is around ₹2,25,983.47 crore.

Should you invest in Wipro shares after Q1 earnings? 

Aditi Patil - Research Associate at Prabhudas Lilladher stated Wipro missed in revenue and margins during Q1FY23. She said, "Miss in revenue Wipro reported IT services revenue of $2.735 billion, 2.1% QoQ CC (Ple: 3%, Cons: 2.8%), 0.5% QoQ USD (Ple: 1.6%, Cons: 1.2%). Growth was led by consumers 5% QoQ CC and Communications 9.2% QoQ CC. BFSI grew 2.4% QoQ CC. Health (0.5% QoQ CC), Energy & Utilities (-1% QoQ CC), Technology (0.8% QoQ CC), Manufacturing (-1.5% QoQ CC) were soft. In terms of markets, America (3.1% QoQ CC) led growth. Americas 2 grew 2.1% QoQ CC and Europe grew 1.2% QoQ CC."

On margins, Patil said, "Consolidated EBIT margins came at 14.3%, -200bps QoQ. (Ple: 16.1%). IT services operating margin is 15%, down 200 bps QoQ (Cons: 16.5%)."

Mitul Shah- Head of Research at Reliance Securities said, "Wipro reported a subdued performance in 1QFY23 with IT services EBIT margin coming in at 15%, 131bps below our estimate of 16.3%. IT Services Revenue grew by 1% QoQ/13% YoY CC in USD to $2.7bn, 1% below our estimate of $2.8bn (consensus US$2.8bn). Sequential constant currency growth came in at 2.1% vs. our estimate of 2.4%. (consensus 2.6%). IT services EBIT de-grew by 9% QoQ (down 7% YoY) to Rs31.8 billion while EBIT margin stood at 15% (down 201bps QoQ /down 406bps YoY), 131bps below our estimate of 15% and 120bps below consensus estimate of 16.2%, impacted by higher employee cost."

Shah added, "Wipros' revenue was broadly in line with our expectations while margins were below our expectations. Recent restructuring efforts, which include simplified operating structure, step-up in capability upgrade and talent management under new leadership bode well for Wipro in the medium-term. However, supply challenge and wage hike would be key challenge to maintain margins over near term. At present we have a BUY rating on WPRO with a 12-M target price of Rs570."