Wipro hits year’s high despite 12% dip in Q3 profit; here’s why

Shares of IT major Wipro Ltd jumped as high as 11.5% to hit a one-year high on Monday as investors cheered better deal wins and green shoots under certain verticals during the October-December quarter, even though the IT major recorded a 12% fall in profit. In line with the Wipro stock, its ADR (American Depository Receipts) also surged to a near 20-month high at $6.35 in overnight trade on the U.S. st0ck exchange.

Shares of the Bengaluru-based company opened a gap up and zoomed to an intra-day high of ₹526.45 on the BSE, taking its m-cap up to ₹2.6 lakh crore. At the current share price of ₹498.15, the Wipro stock is trading 7.03% up from Friday's closing price. The scrip also hit its one-year high today, which is around 33.1% up from a 52-week low of ₹351.85 touched on April 17, 2023.

In terms of return, the Wipro share has risen 24.72% in the past year; 5.92% in the year-to-date period; 19.75% in the past six months; 11.39% in the past month and 8.25% in the past week.

Wipro recorded an 11.7% fall in its net profit for the October-December quarter of 2023-24 at ₹2,694.2 crore as compared to ₹3,052.9 crore in YoY period on revenue headwinds during the “seasonally soft” quarter.

Wipro's revenue from operations reached ₹22,205.1 crore, down 4.4% as compared to ₹23,229 crore in the same period last year.

The IT services segment’s revenue, meanwhile, stood at $2,656.1 million, a decrease of 2.1% QoQ, while the segment’s operating margin was 16%, down by 11 bps QoQ.

The Bengaluru-headquartered IT major's total bookings for Q3 FY24 were recorded at $3.8 billion, a marginal increase of 0.2% QoQ, while the large deal bookings stood at $900 million.

Wipro’s “voluntary attrition” also moderated on a QoQ basis, coming in at a 10-quarter low of 12.3% in Q3’24. The company’s board has declared an interim dividend of ₹1 ($0.0121) per equity share/ADS.

In its outlook for the quarter ending March 31, 2024, Wipro expects revenue from the IT services business segment to be in the range of $2,615 million to $2,669 million, the sequential guidance of -1.5% to +0.5% in constant currency terms.

Among the brokerages, YES Securities says Wipro reported broadly inline financial performance, though muted revenue performance is expected in the near term. YES maintains its "NEUTRAL" rating on the Wipro stock.

"We estimate revenue CAGR of 6.6% over FY23‐26E, with an average EBIT margin of 15.2% over the period. We maintain our NEUTRAL rating on the stock, with a revised target price of ₹505/share at 19.5x on FY26E EPS (earning per share). The stock trades at PER of 20.2x/17.9x on FY25E/FY26E EPS."

Axis Securities has recommended the "SELL" rating, citing Wipro has lagged in its execution despite having better results and better deal wins. "However, FY25E may show some recovery backed by strong deal wins," says Axis, adding that it "recommend (s) a SELL rating on the stock and assign a 17x P/E multiple to its FY26E earnings of ₹26.5/share to arrive at a TP of ₹450/share. The TP implies a downside of 3% from the CMP".

Notwithstanding Wipro's flat revenue guide for Q4 (-1.5%QoQ to +0.5% QoQ), its trajectory is ‘recovering’ after a 6% drop in the quarterly revenue rate over the past three quarters, says HDFC Securities. It maintains the "REDUCE" rating on the stock, based on "17x FY26E for a TP of INR 450".