Wipro to underperform peers; buyback a good option for investors: Experts

Wipro, the Bengaluru-headquartered IT services company, announced a Rs 10,500 crore share buyback programme on Tuesday. The company will repurchase 323.1 million shares, which represents 5.35 per cent of total paid-up equity share capital, at Rs 325 apiece, as per its stock exchange filing. The buyback price is nearly 16 per cent premium to the current market price (as of Tuesday's close).

Given the modest performance in the fourth quarter of the financial year 2018-19 (4QFY19) and soft guidance for the first quarter of financial year 2020 (1QFY20), the stock is expected to underperform peers in the near-term. Hence, buyback programme is a good opportunity for investors to tender their shares and earn profit, experts believe. 

Sanjeev Hota, Head of Research, Sharekhan by BNP Paribas, says, “We believe, Wipro’s buyback would be a good opportunity for retail investors to tender their shares and also could be a tactical opportunity for investors for short-term investment gain. Wipro remains our least preferred stock among the top IT pack.”

In constant currency (CC) terms, the company's revenue grew at 1 per cent QoQ (quarter-on-quarter) basis, below most of the analysts' estimates, who had pegged it between 1-1.5 per cent. Another disappointment from the company was poor 1QFY20E revenue growth guidance of -1 per cent to +1 per cent, at a time when both TCS and Infosys have given positive outlook. "Even considering 1Q is seasonally weak for Wipro, this seems to be lacklustre," say analysts at Reliance Securities.

Going forward, experts appear skeptical of inconsistency and volatility in growth of key verticals. For instance, in March quarter, growth was led by consumer business unit which added 60 per cent of incremental in Q4FY19 while key verticals -- BFSI, Energy and healthcare -- reported flattish growth of 1.3 per cent, 2 per cent and just 0.7 per cent QoQ, respectively. BFSI, Energy and healthcare accounts to nearly 60 per cent of the revenues for Wipro.

Jagannadham Thunuguntla, senior Vice President and Head of Research at Centrum Wealth, says retail investors may consider tendering their shares in the buyback offer as there is a good arbitrage. Moreover, there is a chance that their entire holding can be accepted. Hence, there is a clear opportunity for them. 

Since the past six months (October 2018 onwards till date), Wipro has outperformed the markets by rallying 16 per cent as compared to 13 per cent rise in the S&P BSE Sensex. It is also the top performer among the top five IT players, ACE Equity data show. 

Analysts at Emkay Global Financial Services say overall IT sector appear healthy as macro-economic data in US continues to remain strong and also the technology spends remain high priority area for corporate around the globe. Wipro, however, may see another year of underperformance as it continues to witness weakness in three important verticals and has observed large eight per cent decline in its traditional revenue offerings in FY19 which is negating the positive traction in its digital businesses, which grew 32 per cent in FY19. 

Entity	CMP (Apr 16, 2019)	CMP (Oct 17, 2018)	% change
Wipro Ltd.	281.10	243.00	15.68
S&P Bse Sensex	39275.64	34779.58	12.93
Tech Mahindra Ltd.	797.10	718.90	10.88
Tata Consultancy Services Ltd.	2132.45	1927.70	10.62
HCL Technologies Ltd.	1106.70	1023.85	8.09
Infosys Ltd.	723.85	704.50	2.75

(Source: ACE Equity)