Wipro shares tank over 5% to hit 52-week low after second quarter business update; should you buy or sell?

Wipro shares slipped over 5 per cent on Thursday to hit a fresh 52-week low of Rs 383.25 on the Nation Stock Exchange (NSE) intra-day trade. The Street sentiment turned negative after the IT major reported a poor September quarter show. At 11:45 AM, the counter was quoting a price of Rs 381.35 after declining more than 6 per cent.

According to the software major, Wipro closed the second quarter with a lower net profit of Rs 2,659 crore on higher revenue. It earned revenue of Rs 22,539 crore for the quarter under review up from Rs 19,667 crore earned for the period ended September 30, 2021.

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Wipro earned a net profit of Rs 2,659 crore for the period that ended September 30, 2022, down from Rs 2,930 crore logged for the quarter ended September 30, 2021. The dip in net profit in the quarter was mainly due to a rise in staff expenses and lower non-US earnings The company's employee count in IT services increased to 259,179.

Meanwhile, several brokerages have revised their targets for Wipro. While brokerage firm HSBC has reduced the target to Rs 445 from Rs 450 with a hold rating, Citi has increased the target to Rs 370 from Rs 365 with a sell rating. 

Wipro reported 4.1 per cent QoQ growth in IT services revenue in constant currency, operating margin expands 16 basis points QoQ. The company said IT services segment revenue in constant currency increased by 4.1 per cent QoQ in Q2FY23 and dollar revenue rose by 2.27 per cent QoQ to $2,797.7 million. The company's operating margin stood at 15.1 per cent, up by 16 basis points QoQ. Profit during the quarter grew by 3.7 per cent QoQ to Rs 2,659 crore.

The Bengaluru-based company's revenue from operations stood at Rs 22,539.7 crore, up 14.60 per cent growth over Rs 19,667.4 crore in the previous year.

Sequentially, the revenue increased 4.69 per cent from Rs 21,528.6 crore in the previous quarter while profit was up 3.71 per cent from Rs 2,563.6 crore in the April-June quarter.

"The solid growth in our bookings, large deal signings, and revenues underscores our improved market competitiveness and enhanced value proposition," said Thierry Delaporte, CEO and Managing Director.

Delaporte said Wipro signed 11 large deals worth USD 725 million.

"Our ongoing investments in high-growth strategic areas have allowed us to steadily increase our win rate and enhance the quality of our pipeline. As a result of these efforts and our sharp focus on operational excellence, we are now seeing an improvement in our margins," he said.

Wipro in its outlook for the December quarter said it expects revenue from our IT services business to be in the range of USD 2,811 million to USD 2,853 million. This translates to a sequential growth of 0.5 per cent to 2 per cent.

Operating margin for the quarter came in at 15.1 per cent, an increase of 16 bps quarter-on-quarter. Operating cash flows were 180.6 per cent of net income for the quarter at Rs 4,800 crore or USD 590 million.

The firm promoted over 10,000 employees and its attrition rates recorded a third consecutive quarter of moderation.
Jatin Dalal, Chief Financial Officer, said, "We achieved margins of 15.1 per cent in Q2 after absorbing the impact of salary increases and promotions.

"Our margin improvement was led by better price realisations and strong operational improvements in automation-led productivity. Our Operating Cash Flows was robust and at 181 per cent of our net income for the year."

The attrition rate marginally dropped to 23 per cent in Q2, from 23.3 per cent in the preceding quarter. Hiring was at a slower pace for the quarter ending September 30, 2022. Wipro added 605 net employees. As of September 30, 2022, Wipro's employee count in IT services increased to 259,179 from 258,574 at the end of June.

Wipro's voluntary attrition measured in the trailing 12 months for the quarter was at 23.0 per cent -- a moderation of 30 bps from the June 2022 quarter. Its attrition rate was low at 20.5 per cent during Q2 of FY22.

The company had added 15,446 employees in Q1FY23, while it onboarded more than 10,000 freshers during this period. Wipro said earnings from its clients in non-US markets fell in the second quarter.

Earnings from Europe dropped to Rs 787.5 crore, from Rs 918.6 crore a year back. Similarly, the Asia Pacific/Middle East/Africa (APMEA) region saw lower earnings of Rs 219.4 crore, as compared to Rs 302.8 crore last year.

With PTI inputs