Wipro slips 5% as Q3 earnings fail to meet market expecatations

Shares of Wipro slipped 5 per cent to Rs 657.15 on the BSE in Thursday’s intra-day trade after the company fell short of market expectation, as it’s net profit was up 1.3 per cent on a quarter on quarter (QoQ) basis at Rs 2,969 crore for the third quarter ended December 2021 (Q3FY22).

IT services revenue increased 3 per cent QoQ in constant currency (CC) while dollar revenues were up 2.3 per cent QoQ to US$2,639 million. Rupee revenues were at Rs 19,974 crore, up 3.1 per cent QoQ. IT services EBIT margin declined 60 bps QoQ to 17.1 per cent vs. 17.7 per cent last quarter. IT margins were lower than expected due to higher-than-expected increase in employee expenses and SG&A expenses.

The company’s operating performance was disappointing as revenues as well as margins came below our expectations. The supply side challenges will continue for couple of quarters, which would put pressure on margins. The demand outlook continues to be strong as clients continue to spend on new technologies, ICICI Securities said in a note.

While we are not concerned about the miss in Q3 given the high base of Q2 as well as the seasonal impact, the Q4 revenue growth guidance of 2–4 per cent QoQ also missed our estimate (coming in at 3.9 per cent QoQ), Motilal Oswal Financial Services said.

Given the strong performance by Wipro over the last few quarters, along with positive demand commentary from the management, the guidance was underwhelming and would act as a drag on near-term share price performance. In our view, this should be partially compensated by the continued robustness in Wipro's margins, which are ahead of its guidance of 17–17.5 per cent, the brokerage firm said in result update.

At 09:19 am; Wipro traded 4 per cent lower at Rs 664.65 on the BSE, as compared to 0.18 per cent rise in the S&P BSE Sensex. In the past six months, the stock outperformed the market by surging 25 per cent, as against a 16.8 per cent gain in the benchmark index, while in the one year; it rallied 44 per cent, as compared to 23.5 per cent surge in the Sensex.