Shares of Wipro gained as much as 3.25 per cent to Rs 268.15 apiece on the BSE in intra-day trade on Thursday, even after the company reported a weak set of numbers for the first quarter (April-June period) of the financial year 2019-20 (FY20), announced post market hours on Wednesday.
The Bengaluru-headquartered IT services firm reported a 12.6 per cent rise in consolidated net profit at Rs 2,387.60 crore compared with the corresponding period in the previous fiscal. Net profit declined 3.86 per cent on a sequential basis owing to higher tax outgo apart from lesser revenue from operations. Consolidated revenues of the firm rose 5.3 per cent year-on-year (YoY) basis to Rs 14,716 crore while it declined around 1.94 per cent on a sequential term.
That apart, the major disppointment came in the form of muted revenue guidance of 0.0-2.0 per cent for Q2FY20, implying 0-2 per cent quarter-on-quarter (QoQ) growth at the lower end and upper end, respectively.
Moreover, most of Wipro’s business verticals clocked a soft quarter, with consumer business registering the steepest decline of 4.4 per cent QoQ (cc) owing to deal ramp downs and deferrals. Manufacturing, health and Banking, financial services and insurance (BFSI) fell 2 per cent, 1.5 per cent and 0.6 per cent, respectively.
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"While most businesses grew YoY in constant currency (CC), weakness in health business (up 0.4 per cent YoY in cc) and manufacturing (down 0.1 per cent YoY) is a concern. With muted Q2FY20 guidance, we estimate Wipro to post uninspiring numbers going in to H2FY20 as effect of seasonality becomes more pronounced," wrote analysts at Edelweiss Securities in a results review note.
The only positive is the digital business’ growth, which grew 34.6 per cent on year-on-year (YOY) basis. It accounted for around 37 per cent of revenue.
Maintaining 'Hold' rating on the stock with the target price of Rs 261, Edelweiss Securities said: "unexciting Q2FY20 revenue outlook and sustained decline in revenue in Europe and Rest of World (RoW) geographies mandate the lower-than-peers target multiple of 16x Q3FY21E EPS."
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Analysts at Nomura and Jefferies have also downgraded the stock citing no signs of turnaround visibility, tepid Q2 growth guidance and muted commentary across verticals. For intance, Jefferies has maintained 'underperform' rating on the stock with the target price of Rs 225 from Rs 245 earlier while Nomura has 'reduce' call on the stock with the target price slashed to Rs 235 from Rs 260, earlier.
"We cut our revenue and earnings estimates for Wipro over FY20-21E to reflect weaker growth, stronger INR in FY20E and impact of weaker growth on margins. We also factor the impact of buy-back. Our price target, based on 13x FY21E EPS declines to Rs225 (prev. Rs245). We maintain Underperform as we Wipro to continue underperforming industry growth and believe it is over-valued at 16/15x FY20/21E P/E," wrote Arya Sen of Jefferies in a post results note.
At 10:44 am, the stock was trading 3 per cent higher at Rs 268 apiece on the BSE. In comparison, the benchmark S&P BSE Sensex was ruing 54 points or 0.14 per cent lower at 39,162 levels. By close, the stock had gained further ground, up 3.6 per cent at Rs 269 levels on the BSE.
As regards rise in stock price in Thursday's session, AK Prabhakar, head of research at IDBI Capital, explains: "The stock has corrected sharply from its recent high, which indicates bad results were already priced in. Additionally, their bauyback plan is pending, which gives investors an option to exit the stock, thus lending some buoyancy to the share price."
Shares of Wipro have declined nearly 11 per cent from its 52-week high of Rs 301.55 apiece hit on June 14 this year. "After receipt of shareholders’ approval, the company has filed the draft letter of offer for the buyback with SEBI. Upon receipt of approval from SEBI, we will complete the buyback process," Wipro said in its result release on Wednesday.