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Shares of Wipro on Thursday gained over 1 per cent despite the fourth quarter financial performance and weak guidance by the company having disappointed most analysts, who downgraded or revised the price target lower.
According to analysts, the revenue and margin in the January-March quarter were not in line with their expectations.
The stock closed 1.32 per cent higher at ₹284.80 on the BSE.
During the fourth quarter, Wipro’s revenues grew 1.4 per cent sequentially (q-o-q) in dollar terms. Operating margin declined by 80 basis points to stand at 19 per cent. Wipro reported a 38 per cent increase in fourth quarter profit.
Wipro’s guidance of negative -1 per cent to 1 per cent sequential growth for the June quarter reinforces the modest outlook for the company. However, most analysts say the buyback announcement should hold the stock price at current levels.
Also read:Wipro lags behind peers on key metrics
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“We expect participation from promoters’ group, which will have nearly 5 per cent acceptance ratio for minority shareholders,” Prabhudas Lilladher said, and added: “Buyback will provide a cushion to the stock price in the near term. However, due to muted revenue growth as compared to peers, Wipro will remain an underperformer.”
Poor first quarter for FY20E revenue growth guidance at a time when both TCS and Infosys have given positive outlook is a negative aspect, said Reliance Securities. Even considering Q1 is seasonally weak for Wipro, this seems to be lacklustre. While providing guidance for Q1FY20, Wipro has factored in some project completions without any backfill and delays in order execution.
Also read:Wipro Q4 net jumps 38% to ₹2,483 crore on BFSI growth
Apurva Prasad and Amit Chandra, analysts at HDFC Securities, said in a report: “We downgrade Wipro to Sell (from Neutral), post the insipid Q4FY19 show and weak guidance. Revenue growth remains a challenge and margins are peaking. The recent security breach raises questions about client’s data security and is a setback to Wipro’s reputation.”
According to Narnolia, after seeing weak guidance for Q1FY20 and some challenges in a few segments, “we have reduced our revenue estimates by 2.8 per cent for FY20 and PAT by 1.8 per cent. However, we expect improvement in margins in FY20”.
Wipro announced a share buyback of ₹10,500 crore at ₹325/share. This will be a tender offer and will lead to over 5 per cent equity reduction, boosting EPS and RoE, said Reliance Securities. “Owing to the buyback, EPS will rise by over 5 per cent while RoE will rise by over 150 bps in FY20E. This will support the share price, despite major improvement in growth as yet proving to be elusive,” it aded.
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