Wipro Q2: Analysts cut EPS est, price targets to factor more revenue slide

Wipro Q2 results review: The stock took a hit and fell up to 4 per cent intra-day as brokerages lowered earnings estimates and trimmed price targets

Wipro’s September quarter results (Q2FY24) were in line with weak industry trends, reflecting mounting worries of narrowing client spending for IT services. 

Similar to other peers, Wipro expects a continued revenue decline with Q3 constant currency (cc) IT revenue projected to fall 3.5 to 1.5 per cent sequentially, ahead of what many analysts expected. 

The stock took a hit on Thursday and fell up to 4 per cent intra-day as brokerages lowered Wipro’s earnings estimates for financial year 2024 and 2025 and trimmed price targets on the scrip. 

The 2 per cent sequential drop in its cc revenue in Q2FY24 was at the lower end of its guidance. More slowdown is inevitable given Wipro’s higher exposure to consulting and discretionary spends at a time when order book conversion remains sluggish, analysts said. 

However, those at JM Financial believe that when the macro situation improves, Wipro will be the first to benefit as a result of its large exposure to consulting. 

Here’s what brokerages said on Wipro results: 

Kotak Institutional Equities | Retain Reduce | Target price (TP) cut to Rs 375

Wipro is on a sticky wicket with continued growth underperformance versus peers, senior executive attrition, lack of mega deals and revenue leakage. 

We cut FY24-26 revenue and EPS (earnings per share) estimates by 3-5 per cent and 6-7 per cent, respectively. Valuations are inexpensive but justified considering weak growth prospects. 

Re-rating hinges on improved performance and sustainability, change in the the discretionary spending environment, better participation in large cost take-out deals with wallet share defense in key accounts. 

Nomura | Retain Neutral | TP cut to Rs 400

The weak guidance reflects demand headwinds and potentially higher-than-usual furloughs particularly in the BFSI vertical. We lower FY24-26 EPS by 3-6 per cent. We expect FY24 EBIT margin at 15.3 per cent. 

IDBI Capital | Retain Hold | TP: Rs 390

The order book conversion to revenues is not panning out, led by client caution and project ramp downs. Wipro could also see client specific challenges. Hence, we expect FY24 revenue to be 2.9 per cent lower year-on-year, before reviving by 5 per cent in FY25. 

We cut FY24 EPS estimate by 6.8 per cent to Rs 21, and cut FY25 EPS by 8.4 per cent to Rs 24. 

Motilal Oswal | Retain Neutral | TP: Rs 418

Given the weak growth and guidance, we expect Wipro’s FY24 topline growth to be one of the lowest among tier-1 peers, with margin below the medium-term guided range of 17-17.5 per cent.  

We cut our FY24 and FY25 EPS estimate by 8.2 per cent (to Rs 19.6) and 5 per cent (to Rs 23) to factor in weaker FY24 growth. 

Antique Stock Broking | Maintain Buy | TP cut to Rs 450

We value Wipro 17 times on H1-FY26 EPS, a 30 per cent and 20 per cent discount to TCS and Infosys, respectively, due to lower than expected medium-term growth. 

We cut our FY25 and FY26 EPS estimate by 3 per cent and 4 per cent to Rs 24.8 and Rs 27, respectively.  

JM Financial | Retain Buy | TP kept at Rs 450 

We lower our FY24-26 dollar revenue estimate by 4-5 per cent and EPS by 3-6 per cent on a weaker than expected near-term growth outlook. 

Besides, an undemanding valuation is in its favour. We remain constructive, while being cognizant of lack of immediate triggers.