Outlook for Wipro trimmed after weak guidance, muted Q4 revenue show

India's fourth largest software company continues to underperform compared to peers

A muted revenue performance in the fourth quarter of financial year 2024-25 (Q4FY25), a weak guidance and cut in earnings estimates led to a 6 per cent intraday fall on Thursday in the stock of Wipro, the fourth-largest Indian software company by market capitalisation. Brokerages have cut their earnings estimates by 3-6 per cent for FY26 and FY27, given the muted Q1FY26 guidance and hazy near-term outlook for the company as well as the software sector. The stock recovered a bit, closing the day at ₹236.9, down 4.3 per cent.

 

On the revenue front, in constant currency terms, the company posted $2.6 billion, which was 0.8 per cent lower on a sequential basis and missed the flattish performance that the Street was working with. The revenue growth also came in at the lower end of the company’s own guidance band of -1 per cent to 1 per cent. Barring energy, manufacturing and resources, all verticals declined, with healthcare falling the most at -3.1 per cent quarter-on-quarter (Q-o-Q).

 

Antique Research points out that Wipro’s revenue growth continues to underperform its large peers due to a higher decline in its discretionary portfolio. After the weak Q1 guidance, the brokerage now builds in a 3 per cent decline in FY26 revenue from flat growth expectation earlier. This would mark the third straight year when Wipro may see its revenue decline.

 

Following the major miss on guidance, analysts led by Vikas Ahuja of the brokerage have cut its valuation multiple to 20 times (from 21 times earlier), which is in line with its five-year average. It has a “hold” rating and has reduced its earnings estimates by 3-5 per cent for FY26/27, leading to a cut in target price to ₹275 (from ₹300).

 

The other major disappointment was the lacklustre guidance. For Q1FY26, the company is working with a decline in the -1.5 per cent to -3.5 per cent range, way below Street expectations, which pegged it at -1 per cent to +1 per cent band. The company indicated that the clients on both sides of the Atlantic are deferring decision-making due to the direct and indirect impact of US tariffs, and this is more so in consumer and manufacturing sectors.

 

In addition to deferrals, analysts led by Kawaljeet Saluja of Kotak Institutional Equities believe that Wipro has been losing wallet share in Europe. This weakness will continue in the first half of the ongoing financial year (H1FY26) and is partly a function of the demand environment (industry-wide), and partly share losses in European clients (Wipro-specific).

 

The brokerage believes that Wipro is vulnerable in a recessionary scenario, given higher exposure to discretionary services, courtesy consulting acquisitions in BFSI (Capco) and retail (Rizing), vendor consolidation, and risks in the ability to adapt to technology changes (artificial intelligence, or AI). Kotak Equities has a “sell” rating. It has also cut Wipro’s dollar revenue and earnings forecasts for FY26/27 by 3-4 per cent.

 

Even as discretionary demand remained soft due to macro uncertainties, the company pointed out that the deal pipeline was healthy as it was a combination of large deals, with a focus on cost optimisation and efficiencies, and short-cycle deals. Wipro reported a total contract value (TCV) of $3.9 billion in Q4FY25, up 12.5 per cent sequentially.

 

The large deal TCV too was strong at $1.8 billion, up 83 per cent on a sequential basis. While the book-to-bill ratio remains healthy at 1.5 times, the conversion of the order book to revenues has remained weak due to deferrals.

 

Despite a weak revenue show, Wipro was able to maintain operating profit margins (Ebit) at 17.5 per cent, which was flat sequentially and in line with Street estimates. The company is guided for a similar margin for Q1FY26E despite expected revenue decline. The company highlighted several levers to offset the impact of revenue decline on margins such as improving employee utilisation, cuts in general & administrative expenses, and overhead rationalisation.

 

Given the margin outlook and weak revenue print/guidance, Nomura Research has reduced FY26/27 earnings by 2-4 per cent. It has lowered its target price to ₹280, taking into account 21 times FY27 earnings as compared to the earlier ₹300 target based on 22 times FY27 earnings, to factor in macro risks.