Wipro's Q3FY25 results exceed projections, yet analysts remain divided

Better-than-expected results for the third quarter (Q3) of 2024-25 (FY25) led to a sharp rally in the stock of information technology (IT) major Wipro. The shares rallied as much as 7.37 per cent to hit an intraday high of Rs 302.65, before settling 6.49 per cent higher at Rs 300.15 apiece on Monday. In comparison, the BSE Sensex closed 0.59 per cent higher at 77,073.44, while the BSE 100 was up 0.53 per cent, closing at 24,594.55.

 

While the results exceeded Street expectations, brokerages had a mixed view of the outlook. Although the fourth quarter revenue growth guidance of minus 1 per cent to 1 per cent quarter-on-quarter (Q-o-Q) in constant currency is soft, it aligns with expectations, says Nuvama Research.

 

Based on the improved margin outlook, Nuvama revised its FY25 and 2025-26 (FY26) estimates upwards by 5 per cent and 2 per cent, respectively. Additionally, the dollar/rupee assumption for FY26/2026-27 (FY27) has been updated to 86.5. Nuvama maintained a ‘buy’ rating with an unchanged target price of Rs 350, valuing the stock at 25x its FY27 earnings.

 

In terms of verticals, healthcare and manufacturing saw strong growth at 6.7 per cent and 2.5 per cent Q-o-Q in constant currency, respectively, while banking, financial services and insurance recorded a 1.9 per cent Q-o-Q decline, primarily due to furloughs, highlights Nomura Research.

 

The brokerage raised its FY25-27 earnings estimates by 2-5 per cent, mainly due to an improved margin outlook. The target price remains unchanged at Rs 340, based on a 24x FY27 valuation. Nomura maintained a ‘buy’ rating on the stock, which is currently trading at roughly 20x FY27 earnings per share (EPS).

 

Motilal Oswal Research projects a 2023-24 (FY24) through FY27 IT services annual revenue growth of nearly 3.1 per cent. They expect Wipro to achieve an operating profit margin of around 17 per cent in FY25, leading to a 7.5 per cent annual growth in net profit in rupee terms over FY24-27. Hence, the FY25 earnings estimate has been revised upwards by almost 5 per cent to account for the margin outperformance, while FY26 and FY27 earnings forecasts remain largely unchanged following the Q3 results.

 

The firm maintained a ‘neutral’ rating, considering the current valuation to be fair, with a target price of Rs 290, which corresponds to a 22x multiple on FY27 earnings. 

 

Macquarie Research has maintained an ‘outperform’ rating with a target of Rs 330, noting that the earnings before interest and tax (Ebit) margin surpassed expectations, supported by a higher dividend payout. The brokerage prefers Wipro over Tech Mahindra due to its turnaround plan.

 

Analysts at Emkay Research noted that Wipro delivered a better-than-expected operating performance in Q3. The management highlighted that the impact of furloughs in Q3 was lower than anticipated. Despite the added pressure of a two-month salary hike, the IT services Ebit margin expanded by 70 basis points to 17.5 per cent, marking the highest level in 12 quarters.

 

Deal intake remained steady at $3.5 billion, including almost $1 billion in large deal bookings, with a book-to-bill ratio of 1.3x.

 

While the management remains cautiously optimistic about demand, discretionary spending is gradually making a comeback. The deal pipeline continues to be robust, driven by cost takeouts and vendor consolidation deals, with a strong focus on deal conversions.

 

Consequently, Emkay analysts have adjusted FY25-27 EPS estimates by 0.5 per cent to 3.1 per cent, factoring in Q3 performance and improved payouts under the revised capital allocation policy. Emkay maintained a ‘reduce’ rating with a target price of Rs 290, valuing the stock at 20x December 2026 earnings.

 

Citi Research maintained a ‘sell’ rating with a target of Rs 280, citing an expected gradual recovery. Morgan Stanley Research has stuck to its ‘underweight’ rating with a target of Rs 250, noting that margins have exceeded expectations despite the impact of wage hikes.