Wipro slips over 4% on weak Q2 results, disappointing Q3 guidance; Goldman Sachs, Citi maintain 'Sell'

Wipro share price: Shares of Wipro declined as much as 4.26 per cent to Rs 390.10 apiece on the BSE in the opening deals on Thursday, October 19, after the IT services company posted a disappointing set of numbers for the September quarter (Q2FY24). The company also lowered its revenue guidance for the IT Services segment for the December 2023 quarter (Q3FY24) to -3.5 per cent to -1.5 per cent in constant currency (CC) terms, bolstering the view that the pain in the company will continue for a long time.

Wipro indicated that the business environment remains uncertain with high inflation and interest rates. Clients continue to monitor their investments closely, with a focus on efficiency, optimisation of existing investments, and a faster return on new ones. It said lower discretionary spending is no longer unusual, and the conversion of total contract value (TCV) to revenue has become slower. It also said that transformation projects that are close to an end are being replaced by newer programmes, but at a slower pace, which has led to a QoQ and YoY revenue decline. 

Further, Wipro’s headcount has decreased by nearly 18,000 from its peak. In the past, it had indicated that it had eliminated unproductive layers. In terms of fresher additions, it stated the focus was on fulfilling the offers made earlier and does not see itself going to the campus soon. 

Brokerage Nirmal Bang Securities notes that in CC terms on a YoY basis, Healthcare, Life Sciences, and Services verticals led the growth and grew by 7.1 per cent followed by Technology which grew by 1.7 per cent. Communications showed the biggest decline and fell by 14.6 per cent, followed by BFSI, which fell by 9.5 per cent. Retail declined by 6.7 per cent while Manufacturing and Hi-Tech declined by 3.6 per cent and Energy, Natural Resources and Utilities declined moderately by 1.6 per cent.

The domestic brokerage added that while the large deal TCV (greater than US$30 million in size) numbers are quite strong on a YoY basis, it is not sure whether Wipro is winning enough amount of net new TCV (total contract value) to drive growth. The TCV to revenue conversion has been a problem for the entire industry, but it seems to be a particularly acute one for Wipro, analysts at Nirmal Bang Securities note in the results review report.

It has maintained a "sell" rating on the stock with a target price of Rs 353.

Among global brokerages, Goldman Sachs has also maintained a "sell" on the stock with a target price of Rs 380. The brokerage said that Wipro's 3QFY24 revenue guidance of -3.5 per cent to -1.5 per cent qoq indicates a further deceleration in revenue growth and continued market share erosion. Citi has also maintained "sell" on the stock with a target price of Rs 360. 

Morgan Stanley, JP Morgan, and Jefferies have maintained an "underweight" rating on the stock.