Wipro shocker! Stock plunges over 3%; should you buy now?

The share price of Wipro in Monday's trading session took a surprising hit from investors and this is despite posting a good December 2018 (Q3FY19) result. Wipro was trading at Rs 341.10 per piece, down by 1.47% on BSE at around 0924 hours. However, Wipro stock at one point even plunged by 3.10% after clocking an intraday low of Rs 335.45 per piece. Wipro in its Q3FY19 result, posted a consolidated net profit of Rs 2,544 crore rising by a massive 31.43% from Rs 1,935.9 crore a year ago same period.

Similarly, Q3FY19 PAT of Wipro also witnessed a double-digit growth of 34.93% compared to PAT of Rs 1,885.6 crore in preceding quarter. Consolidated revenue came in at Rs 15,059.5 crore in Q3FY19, registering an increase of 10.17% as against Rs 13,669 crore in Q3FY18 and also up by 3.56% from Rs 14,541 crore in Q2FY19. 

Revenue was boosted due to stellar performance seen in BFSI segment, as Wipro recorded a 24.77% growth to Rs 4,597.9 crore in Q3FY19 compared to Rs 3,684.9 crore in Q3FY18.

For nine month period of FY19, Wipro's revenue stood at Rs 43,578.82 crore up by 7.02% from Rs 40,718.5 crore in the corresponding period of previous year. Also, net profit was at Rs 6,525.1 crore in 9MFY19 higher by 9.63% from Rs 5,951.9 crore in 9MFY18.

However, despite recording positive result in Q3FY19, looks like investors are still not convinced about how Wipro shares will perform.

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Should you invest in Wipro? 

HDFC Securities says, "Wipro’s focus on Digital (33.2% of rev, +6.0% QoQ) and strong growth in BFSI (31% of rev, +5.3% CC QoQ) is driving growth. ENU (13% of rev, +4.6% CC QoQ) growth can be under risk led by volatility in crude prices."

HDFC Securities added, "Margin recovery has been robust (+260bps YoY) led by operational efficiency and lower G&A but further expansion is difficult. Wipro’s USD revenue growth CAGR of 4.2% for FY18-21E is the lowest in the Tier-1 IT pack. We expect USD revenue growth of 1.6/5.4% and IT services EBIT% at 18.3/18.5% for FY19/20E. The stock currently trades at a P/E of 17.9/16.2x FY19/20E EPS (~2% premium to Tier-1 average). The 6M outperformance (+22% vs 2% fo Nifty IT) is based on margin expansion, expected buyback and bonus issue of 1:3."

Following which, HDFC says, "Further re-rating seems difficult based on near term growth challenges, we maintain our NEUTRAL rating with a TP of Rs 330 based on 14x Dec-20E earnings."

On the other hand, CLSA said, "The sharp surprise in its margin was led by a sharp reversal of PDD, automation and fall in subcontractors – some of which should reverse over CY19. However, strong margin execution over the last two quarters leads us to upgrade margins by 100bps. A combination of 1% revenue cut and 100bps margin increase results in a 4-6% upgrade to FY19-21CL EPS and TP. We retain SELL given lack of convincing growth acceleration."

Similarly, Emkay added, "While better outlook and improvement in margins bring a small 3.5% change each to our FY20/FY21 EPS estimates, we still believe that Wipro’s underperformance will continue for some more time, given the ongoing restructuring and macro challenges in its Healthcare vertical. Maintain Reduce, with a target price of Rs310."