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Wipro surges 5%, hits 3-year high; stock soars 15% in 4 days on strong Q3

Wipro's current combination of a favourable portfolio mix, new CEO ushering in positive momentum, strong margin performance and inexpensive valuations make for an attractive risk-reward profile

Wipro

Wipro

Deepak Korgaonkar Mumbai

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Wipro share price hit a three-year high of Rs 324.55 as it rallied 5 per cent on the BSE in Thursday's intraday trade, amid heavy volumes, on a healthy outlook. The stock price of the information technology (IT) company surpassed its previous high of Rs 319.95, touched on December 20, 2024.
 
Wipro share is trading at its highest level since January 2022. The stock had hit a record high of Rs 369.90 on October 14, 2021.
 
In the last four days, Wipro shares have soared 15 per cent after the company's IT services earnings before interest tax (Ebit) margin grew to a 12-quarter high of 17.5 per cent (up 70 bps quarter-on-quarter (QoQ)) in the December quarter (Q3FY25), led by improved offshoring, employee cost and SG&A optimisation, and fixed price productivity.
 
 
Margins have now reached the management's aspirational band of 17–17.5 per cent and are likely to stabilise at these levels. Q3 total contract value (TCV) was decent at $3.5 billion (down 1.3 per cent Q-o-Q/7.3 per cent Y-o-Y) with large deals total contract value (TCV) at $0.96 billion (down 35 per cent QoQ, but up 6 per cent Y-o-Y) with 17 large deals.
 
However, the management guided that Q4 revenue growth could be between -1 per cent and +1 per cent Q-o-Q -- slightly soft -- though along expectations. Interestingly, Wipro has reported growth close to the top-end of its guidance over the last two quarters compared with close to mid-point historically, according to analysts.
 
Wipro's current combination of a favourable portfolio mix, new CEO ushering in positive momentum, strong margin performance, and inexpensive valuations (20x FY27PE) make for an attractive risk-reward profile, said analysts at Nuvama Wealth Management.
 
The brokerage firm recently upgraded Wipro stock on the above thesis, It maintained its 'Buy' rating with a 12-month target price (TP) of Rs 350 per share.
 
Wipro's Q3 performance was an inflection of sorts. Revenues topped, albeit marginally, the upper end of its guide -- a first in over 12 quarters. EBIT margins scaled to its stated target of 17.5 per cent, despite absorbing two months of wage hike. Wipro upped its capital allocation – from 45-50 per cent of profit after tax (PAT) to 70 per cent plus. Outlook promises the momentum to sustain, said analysts at JM Financial Institutional Securities said in a result update report.
 
"Guidance for Q4 was -1 per cent to 1 per cent Q-o-Q in constant currency (CC) based on current visibility. Management called out that 2025 looks more hopeful and resilient. They did not call out any particular headwinds or tailwinds. They mentioned that they will be keeping a close watch on the rupee movement. They expect an uptick in BFSI budgets going forward, and expect Healthcare budgets to grow at a slower rate compared to past quarters. They see good momentum in deal pipeline across geographies and sectors, and are focused on converting them to deals," the brokerage firm said with a 'buy' rating on the stock and a 12-month Wipro share price target of Rs 360 per share.
 
Notably, consulting demand showed an uptick, with Capco deal wins rising 9 per cent Y-o-Y and revenue up 11 per cent Y-o-Y, alongside a gradual recovery in discretionary spending in BFSI in North America, though not uniformly.
 
The Health segment exhibited broad-based growth, while BFSI (affected by furloughs) and Energy, Manufacturing & Resources (EMR) remained soft, requiring recovery, ICICI Securities said in a note.
 
"The deal pipeline remains robust, with strong traction in large deals (particularly in BFSI and EMR, focusing on cost optimization and cost-takeout mid and small sized deals), contributing to improved average contract value (ACV). Management expressed confidence in maintaining margins at around 17.5 per cent, with no major headwinds in Q4. Nonetheless, the Q4 revenue guidance of -1 per cent to 1 per cent (flat QoQ at the midpoint) tempers sentiment for the upcoming quarter," the brokerage firm said.
 
"The guidance has factored in continued weakness in Europe and APMEA markets, which are undergoing some restructuring under the new leadership team. There has been a churn in the top management in the past, and at least on that front, with the appointment of a new internal candidate as the CEO, we can draw comfort. TCV has stabilised but the number is still down versus that a few quarters’ ago. Recovery is still away as conversion to revenue has been slow," analyst at Elara Capital said in the Q3 result update.

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First Published: Jan 23 2025 | 11:06 AM IST

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