Wipro hits new high on healthy Q1 results; surges 12% in 3 days

The robust growth guidance, coupled with healthy deal wins and traction in digital technologies prompt ICICI Securities to be positive on the stock

Shares of Wipro hit a new high of Rs 589, up 2 per cent, on the BSE in intra-day trade on Friday after the company reported a healthy set of June quarter (Q1FY22) numbers. The scrip has surged 12 per cent in three days.

At 09:30 am, it was up by less than 1 per cent at Rs 578.90 after hitting a low of Rs 568.25 in intra-day trade today. A combined 1.9 million equity shares had changed hands on the counter on the NSE and BSE so far.

Wipro surpassed its revenue guidance for the first quarter (Q1), which it hailed as its best ever, as it reported a 35.7 per cent year-on-year (YoY) increase in consolidated net profit. This performance was aided by an acceleration in demand thanks to the cloud and digital transformation, and supported by the company’s new business strategy. Net profit grew to Rs 3,243 crore and was up 9.1 per cent sequentially. Revenue grew 22.3 per cent YoY to Rs 18,525 crore and was up 12.4 per cent sequentially. READ HERE FOR MORE

IT services revenues increased 12.2 per cent quarter-on-quarter (QoQ) in constant currency (CC) terms. In US dollar terms, the company reported revenue of $2.4 billion, a growth of 12 per cent sequentially in constant currency  (CC) terms. This was much ahead of the Street’s expectation of 10 per cent sequential growth. However, the company’s margins declined by more than 200 basis points (bps) to 18.8 per cent.

Out of the 12.2 per cent QoQ growth, organic revenue growth was 4.9 per cent QoQ and the rest was led by Capco. Ramp up of deal wins is expected to help drive revenues in Q2FY22E. Wipro guided that its Q2FY22E IT services revenues would be in the range of $2,535 -2,583 million, which translates to 5-7 per cent QoQ growth.

Wipro reported a total contract value (TCV) of $715 million in Q1FY22. There was a healthy mix of deals across verticals and geographies. This was not driven by any large deal but was a healthy mix of medium and small deals, lending confidence on a broad-based demand scenario.

ICICI Securities believes the company has reported robust organic revenue growth and given strong guidance of 5-7 per cent QoQ in Q2FY22E. This, coupled with healthy deal wins and traction in digital technologies (especially cloud & customer experience) prompt us to be positive on the stock, the brokerage firm said in a note.

“The robust growth guidance reflects a strong demand scenario and the company’s improving execution capabilities. With this, we expect revenue growth at 27 per cent (18 per cent YoY organic growth) from IT Services in FY22. Wipro should see multiple margin headwinds such as wage hikes, Capco integration, retention/hiring-related expenses, and investments. While cost synergies and continuous cost optimisation should partially cushion this impact, it should result in a 340bp YoY reduction in EBIT margin in FY22E. This should, in turn, lead to a 7.6 per cent PAT growth in FY22E, the weakest in our large-cap coverage,” Motilal Oswal Securities said.