Wipro slips 4% post results. Should you dump the stock?

Given the recent results, analysts suggest that the stock will continue to remain under pressure for some time

Wipro lost 4.3% or Rs 25, in morning deals today to Rs 553 levels on the National Stock Exchange (NSE) after the company posted a net profit (standalone) of Rs 2,141.6 crore for the quarter ended March 2015 compared to Rs 2,353.1 crore for the quarter ended March 2014.

“Total Income during the recently concluded quarter increased from Rs 10,922 crore in the year ago quarter to Rs 11,230.3 crore for the quarter ended March 2015,” Azim Premji - led Wipro said in a statement.

On a consolidated basis, the Group posted a net profit of Rs 2,272 crore in the March 2015 quarter, a growth of 2%. Total income increased from Rs 12,099.5 crore for the quarter ended March 2014 to Rs 12,719 crore in the March 2015 quarter.

After a sequential decrease of 1.2% IT Services revenue at $1,774.5 million during the recently concluded quarter, For Q1FY16, Wipro expects revenues from IT Services business to be in the range of $1,765 million to $1,793 million.

"Wipro Q4FY15 results were mixed?bag ? revenue missed, margin and guidance touch ahead of expectation. The management is confident of improving growth momentum in CY15 on the back of large deal wins. We expect marginal earnings upgrade by consensus despite weaker than expected IT services revenue, contrary to earnings cut for other peers that reported results so far," said Shashi Bhusan, an analyst tracking the company with Prabhudas Lilladher.

Besides Wipro, Hexaware, HCL Technologies, Tech Mahindra, Infosys, MphasiS and TCS also lost between 0.5% - 2.5% till 10:10am. CNX IT index was among the top loser among sectoral indices that slipped 1.1%. In comparison, the 50-share CNX Nifty was trading higher by 0.25%.

Outlook

Given Wipro’s quarterly (Q4FY15) and full–year (FY15) performance, analysts suggest that the stock will continue to remain under pressure for some time as the telecom and energy verticals continue to hamper overall revenue growth.

“Wipro’s poor revenue performance in Q4FY15 and subdued Q1FY16 guidance will keep the stock subdued, despite apparently reasonable valuation. We would like to point out that valuation is a function of growth consistency, and Wipro’s inconsistent performances do not warrant a stock re-rating. We retain our ‘hold’ rating with a revised target price of Rs 611 (Rs 657 earlier) as we downgrade our target PE to 14x from 15x,” said Harit Shah, an analyst tracking the company with Karvy.

Ashwin Mehta and Pinku Pappan of Nomura in a post results note suggest that Wipro remains their least preferred stock in Tier-1 IT, as they think its competitive positioning in developed markets is weaker versus peers.

"We prefer HCL Technologies, Cognizant Technology Solutions and TCS. We believe the stock is likely to react negatively to the weaker guidance, and expect consensus growth expectations to be cut," they said.

Bhusan, however, maintains an ‘accumulate’ rating on the stock with a price target of Rs 578.