Wipro shares opened higher in intra-day trade on Friday, at ₹387. Around 02:00 p.m., the stock was up more than 0.12% at Rs. 379.50 on the BSE. In the previous trading session, the stock marked one of the largest one-day decline of 7.3%, the highest since May 2022 after the company announced revenue growth guidance of 0.5-2% for the third quarter of FY23.
The street was unimpressed by Wipro's second-quarter results, which were released on Wednesday and fell short of estimates. The company reported a 9% year-on-year decline in consolidated net profit at ₹2,649 crore for the quarter that ended September, owing to higher employee costs, rising subcontracting costs, and higher onsite expenses, which pushed up overall expenses. Wipro's total expenses increased by 19.26% to ₹13,896.4 crore from ₹11,651.6 crore.
The operating cash flow stood at ₹2,332 crore, or 90% of its net income. IT services hiring continues to remain strong with a closing headcount of 2,58,574.
Wipro's overall order book grew at a healthy 24% YoY in Q2. Large deal bookings were up 42% YoY in H1 FY23. Though the order book is healthy, management pointed out the change in the demand environment as compared to the accelerated demand witnessed in FY22 as clients are cautious and assessing the impact of macro headwinds.
Wipro is witnessing a slowdown in its consulting business due to Capco and Rizing acquisitions, said ICICI securities in its equity research report.
During the September quarter, Wipro added four clients in the $100 million category and 10 clients in the $50 million bucket.
On the stock performance side, Wipro stood as the biggest laggard in the Nifty50 index in the past one year by falling nearly 43%. The stock has dropped steadily since the beginning of 2022 with no sign of relief. The stock is currently trading close to its December 2020 lows.
The stock touched a 52-week-high of ₹739.8 on October 19th, 2021 and a 52-week-low of ₹378.1 on October 13, 2022, indicating that at the current level the stock is trading at a discount of 48.01% from its one year high.
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After the September quarter results, the domestic brokerage firms have given mixed signals on the stock. ICICI Securities cut its revenue estimates for Wipro by 0.6% and 1.4% for FY23 and FY24 due to slowing demand in the consulting business.
The brokerage firm valued Wipro at 15x FY24E earnings to arrive at a revised target price of ₹372. "We reiterate our 'REDUCE' rating on the stock due to more headwinds than peers heading into a macro slowdown as large acquisitions have increased the discretionary nature of business, volatile order book, lowest EPS CAGR in the pack at 5.3% over FY22-FY24E, weak margin profile of IT services which dropped to 15% in H1FY23 vs 17-18% pre-covid," said analysts at ICICI Securities.
While Axis Securities, on the other hand, maintains a 'hold' rating on the stock with a target price of ₹440/share. Over the years, Wipro has proactively built a resilient business. Furthermore, slowing down the automation spending in the world's largest economies has become a key point of concern in the forthcoming quarters. Rising operating costs like employee costs, travel costs, and higher site expenses may put operating margins under stress, said the brokerage.
HDFC Securities keeps its "add" rating on the stock with a target price of ₹460, implying an upside of 21.63% from the current market price. The brokerage expects the margin trajectory (FY23E exit rate) to improve, led by improved profitability in Europe geography, price realization, and improved productivity.
An average of 39 analysts polled by MintGenie have a 'hold' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.