Should you buy, sell or hold Wipro shares post Q1 results?

Shares of Wipro surged nearly 2% in opening trade on Friday, extending gains for the second straight session, after the IT major released its first quarter earnings report post market hours yesterday. The rise in Wipro shares was in sync with broader market as well as the NSE IT index, with index heavyweights Tata Consultancy Services, Infosys, HCL Technologies, and Tech Mahindra climbing up to 1.5% in early trade.

Wipro shares opened flat at ₹394.35 and gained as much as 1.6% to ₹400.8 in the early trade so far on the BSE. On the volume front, 1.82 lakh shares changed hands over the counter, while the market capitalisation rose to ₹2.17 lakh crore.

The stock has risen 14% against its 52-week high low of ₹351.85 touched on April 17, 2023, while it is down 10% against its 52-week high of ₹444.65 hit on August 17, 2022. In the last one year, Wipro share price has delivered muted returns, falling 1.5% in 12-month and 0.6% in six month period. In the calendar year 2023, the IT stock has climbed 1%, while it has given a flat return in one month.

For the April-June quarter of 2023, reported 12% growth in standalone net income on a year-on-year (YoY), while the company's profit dipped 6.6% sequentially on a drop across all major metrics. The revenue stood at ₹22,830 crore in Q1 FY24, an increase of 6% YoY, including a 6.1% increase in the IT services revenue.

Going ahead, Wipro expects revenue from the IT services business segment to be in the range of $2,722 million to $2,805 million in its guidance for the quarter ending September 30, 2023. "This translates to sequential guidance of -2.0% to +1.0% in constant currency terms."

What should investors do with Wipro shares?

According to Axis Securities, Wipro has lagged in its execution despite having better results and better deal wins. The agency has assigned a ‘HOLD’ rating on the stock for lacking the necessary visibility, but revised the price target to ₹400 from ₹385 earlier.

“From a long-term perspective, we believe Wipro has a strong deal pipeline and superior financial structure. However, it lags in execution capabilities to capitalize on growth as compared to peers. Moreover, rising concerns over the prospects of large economies along with prevailing supply-side constraints pose uncertainties over the company’s short-term growth rates,” the agency says in a report.

Analysts at JM Financial have assigned a ‘Buy’ rating on the stock amid low expectations, undemanding valuations, and positive structural changes. The agency has given a 12-month price target of ₹450, an upside potential of 14% from the current market price. “A weak discretionary spending environment is impacting Wipro’s near-term growth and outlook - probably a little more than peers - masking the impact of ongoing structural changes on the headline numbers,” it said.

ICICI Securities has downgraded the stock to ‘SELL’ from ‘Reduce’ and revised the 12-month target price to ₹319, implying a 19% potential downside. The agency has cut Wipro’s earnings per share (EPS) estimates sharply by 11%, 9%, 7% over FY24E, FY25E, FY26E due to weaker revenue growth, lower margins, and higher tax rates.

Nuvama Institutional Equities has recommended a 'hold' rating with a lower target price of ₹400 against ₹410 estimated earlier. The brokerage has lowered its earnings per share (EPS) projections for the years FY24E and FY25E by 3.3% and 3%, respectively, due to slower growth. 

Motilal Oswal Financial Services has also cut its FY24E/FY25E EPS by 3.5%/4.9% to factor in weaker FY24 growth. It has maintained a ‘Neutral’ rating with a target price of ₹380 as the brokerage awaited further evidence of the execution of Wipro’s refreshed strategy, and a successful turnaround from its struggles over the last decade before turning more constructive on the stock. 

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