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Business News/ Markets / Stock Markets/  Wipro shares trading at expensive valuation, offer little margin of safety, says Kotak Equities; downgrades to ‘Sell’
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Wipro shares trading at expensive valuation, offer little margin of safety, says Kotak Equities; downgrades to ‘Sell’

Wipro stock is expensive at 21X FY2026E earnings and trades at just 6-9% discount to Infosys and HCL Technologies despite significantly weaker fundamentals, Kotak Equities said.

Wipro faces multiple challenges, both internal and external, which have created headwinds to growth, the brokerage said. (Image: REUTERS)Premium
Wipro faces multiple challenges, both internal and external, which have created headwinds to growth, the brokerage said. (Image: REUTERS)

Wipro shares are trading at an expensive valuation and the IT major is expected to see significant growth underperformance as compared to peers and industry, Kotak Institutional Equities.

The brokerage has downgraded Wipro to ‘Sell’ on unattractive risk-reward and has revised the target price on the stock to 440 per share from 430 earlier, following a sharp 34% stock upmove in the past three months.

It believes Wipro stock is expensive at 21X FY2026E earnings and trades at just 6-9% discount to Infosys and HCL Technologies despite significantly weaker fundamentals. 

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“Wipro has materially underperformed peers such as Infosys and HCL Technologies on growth in the past several years and yet commands hefty multiple of 21X FY2026E earnings, at just a 6-9% discount. Wipro, on an average, has underperformed on revenue growth by ~5% versus Infosys and HCL Tech on organic constant currency (CC) basis in the past 10 years," Kotak Institutional Equities said in a note.

The underperformance has continued under the current CEO’s tenure with the reduction in gap in FY2021 and FY2022 offset by the increase during the past couple of years, it added.

Moreover, Wipro faces multiple challenges, both internal and external, which have created headwinds to growth. Attrition in key management personnel is elevated and not a good sign in later years of turnaround effort. Mega deal announcements have been muted, the brokerage firm noted.

It believes Wipro is susceptible to share losses in vendor consolidation events on a net basis and estimates a modest 3.6% USD revenue CAGR in FY2024-26.

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Besides, Wipro’s woes in FY2023 and FY2024 are not limited to BFSI alone where it has high consulting exposure. Verticals ex-BFSI have also struggled, notably manufacturing where peers have done much better. The path to recovery in ex-BFSI verticals is uncertain, Kotak Equities said, adding that Europe is another segment where performance is weaker than expected given high investments in the region via Capco acquisition and local leadership hires.

It prefers reasonably valued stocks with consistent execution and ability to cater to both discretionary spending and cost take-outs. 

“Any recovery in discretionary spending can be played equally well or better in our ADD/BUY rated Tier 1 stocks — Infosys, TCS and HCL Tech that have better growth and RoIC profile. Wipro is expensive at 21X FY2026E EPS and offers little margin of safety," Kotak Equities said.

At 10:15 am, Wipro shares were trading 0.36% lower at 529.45 apiece on the BSE.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 28 Feb 2024, 10:17 AM IST
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