Wipro slips 6% on profit booking after Q2 results, buyback announcement

In past one month, Wipro had outperformed the market by surging 28 per cent, against 4 per cent rise in the S&P BSE Sensex.

Shares of Wipro slipped 6 per cent to Rs 534 on the BSE in the early morning trade on Wednesday on profit booking after the company reported a healthy July-September quarter (Q2FY21) results.

The company has declared a buyback of 238 million equity shares from its shareholders on a proportionate basis by way of a tender offer. The buyback price is Rs 400 per equity share payable in cash for an aggregate amount not exceeding Rs 9,500 crore.

IT services revenues increased 2 per cent quarter-on-quarter (QoQ) in constant currency (CC) terms, which was above analysts' estimate of 1.1 per cent growth in CC terms. IT services' EBIT (earnings before interest, tax) margin increased by 30 basis points QoQ to 19.3 per cent.

The stock hit an all-time high of Rs 382 on Tuesday in the intra-day trade. In the past month, Wipro has outperformed the market by surging 28 per cent, against a 4 per cent rise in the S&P BSE Sensex. In the past six months, the stock nearly doubled, by zooming 98 per cent, as compared to 32 per cent gain in the benchmark index.

ICICI Securities expects Wipro to witness healthy revenue growth in the coming years, mainly led by healthy traction in deals, growth focus of new CEO, acquisition of new logos, and traction in digital revenues. Further, the brokerage firm believes improving growth along with cost rationalisation will keep margins buoyant. "This, coupled with a healthy capital allocation policy and improving tech spends on digital technology prompt us to be positive on the stock," the brokerage said.

Broad-based recovery across verticals, continued margin resiliency, and strong cash generation were the key positives for the company. A robust deal pipeline and improved demand present an encouraging outlook, Motilal Oswal Securities said in result update.

"In the past few years, Wipro has underperformed Tier-I companies on growth, partly due to its higher exposure to challenged verticals (e.g., Healthcare and ENU). Additionally, changes at the company level (restructuring in India / the Middle East, etc.) have further constrained growth. However, we expect some verticals to recover and drive medium-term growth (e.g., Health BU)," the brokerage added.

Margin resilience and cash generation have been impressive over the past couple of quarters. The buyback announcement, management guidance for revenue growth in 3Q, and outlook for maintaining margins within a narrow band are other key positives, the brokerage firm said.