Wipro lags behind peers on key metrics

K Venkatasubramanian BL Research Bureau | Updated on April 17, 2019

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Guidance and margins disappoint

After reporting a couple of good quarters, Wipro has once again slipped on the revenue and margin fronts in the March period.

A weak guidance given by the company for the June quarter meant that markets will have little to cheer, apart from the buyback of shares that Wipro announced at a price of up to ₹325 — 15.6 per cent more than the stock’s closing price on Tuesday.

Falling behind

During the fourth quarter, Wipro’s revenues grew 1.4 per cent sequentially (QoQ) in dollar terms.

Peers Infosys and Tata Consultancy Services delivered much stronger results.

Infosys’ revenue grew 2.4 per cent sequentially in dollar terms, while Tata Consultancy Services reported a 2.8 per cent increase in sales.

Operating margin declined by 80 basis points for Wipro and stood at 19 per cent.

However, there were two key positives for the company during the period, in the form of traction in its key verticals and reasonable growth in revenues from the Americas geography. BFSI (banking, financial services, insurance), healthcare and consumer verticals, which together account for nearly 70 per cent of Wipro’s revenues, grew much faster than the company’s rate —1.9-5.6 per cent sequentially in dollar terms.

Sales from the key Americas geography increased 3.1 per cent, but revenue from Europe fell 1.8 per cent.

Customer additions were a mixed bag, too.

While Wipro added three clients in the $75-million category during the quarter and one in the $10-million bucket, there was a reduction in the number of customers in the $20-million band.

Deservedly at a discount

Wipro ended FY19 with a revenue growth of 5.4 per cent in constant currency dollar terms. Infosys ended FY19 with a revenue growth of 9 per cent, while TCS finished with 11.7 per cent growth in sales. HCL Technologies, too, is expected to report double-digit revenue growth for 2018-19.

Wipro’s guidance of -1 per cent to 1 per cent sequential growth for the June quarter reinforces the modest outlook for the company .

The company’s operating margin is a good 3-6 percentage points lower than peers, and revenue growth is a little more than half that of its rivals.

While Wipro trades at 18 times its trailing 12 months’ per share earnings, Infosys (21 times) and TCS (25 times) command higher multiples. The company is unlikely to bridge the valuation discount vis-à-vis Infosys and TCS in the foreseeable future.


Published on April 16, 2019

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