Wipro plunges 7% as Q2, guidance don’t enthuse analysts

Shares of Wipro crashed 6.9 per cent on Wednesday as the Q2 results ‘disappointed’ market analysts. The stock ended the day on low point, ignoring the sharp recovery that market witnessed in the closing hours. According to analysts, the financial performance of the company is on expected lines but the current market price is stretched. However, some await more evidence of turnaround.

Wipro shares closed at ₹349.60 on the BSE, near its low level of ₹348.50. The benchmark BSE Sensex, which opened weak on Wednesday and plunged almost 350 points to touch a low of 40.279.55, closed with a gain of 158 points at 40,784.10.

The Bengalaru-based software major posted July-September net income of ₹2,470 crore on Tuesday, down 3.1 per cent year-on-year . The company also said it will spend as much as ₹9,500 crore buying back its shares at ₹400 a share.

Goldman Sachs, which maintained sell rating on the stock with a price target of ₹277, said that due to tight cost controls Wipro reported a beat at the EBIT level, even though top-line growth was largely in line with GS/Bloomberg consensus expectations .

“Even the guidance for 3Q at 1.5-3.5 per cent q-o-q growth was largely as expected. CEO mentioned a 5-point strategy for future business growth momentum which to us at a broad level doesn’t seem too different from what they are already doing currently,” it added.

With the stock trading at 21.6X FY21 (its 12-year high), which Goldman Sachs believes is partly driven by expectations of the share buyback, no material change in near-term growth outlook. “Wipro continues to have the weakest growth profile among its peers; we reiterate our ‘Sell’ rating with a revised 12-month target price of ₹277 (vs. prior ₹265), implying 26 per cent potential downside.”

CLSA maintained its underperform on Wipro, but raised the target price to ₹370 (₹320).

KR Choksey has upgraded Wipro to ‘Accumulate’ from ‘Sell’ with a revised target price of ₹420 (₹307), as "we raise FY22/FY23 EPS by 3-4 per cent and raise our target multiple on the stock to 20x from 15x, given better-than-expected revenue visibility".

Built-up in F&O

"Heavy build-up in derivative segment ahead of the result and unwinding post that caused a sharp fall," said an analyst based at Chennai. The stock will maintain its momentum once this 'noise' is over, he added.

Open interest in Wipro on the NSE zoomed from about 2.4 crore shares on September 30 to 3.32 crore shares on October 14 as the price rose from ₹315 to ₹383.

According to Motilal Oswal, “We await further evidence of execution of Wipro’s refreshed strategy and a successful turnaround from its growth struggles over the past decade before turning more constructive on the stock.”.\

Wipro made some progress in accelerating growth in the last few quarters but it is still not broad-based and consistent; and effect of changes in the business strategy under new leadership needs to be seen, said Emkay Global.

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