Wipro Q4 Results Review - Stable Performance, Need More Consistency: Prabhudas Lilladher

Prabhudas Lilladher Report

Wipro reported revenue (IT Service) of $2.7 billion, down 0.3% QoQ in constant currency and flat QoQ in reported terms, in line with consensus. FY24 revenue growth stood at -4.4% CC YoY, at the lower band of the range to its closure peers.

Although Q4 growth was aided by seasonal strength in Capco (up 6.6% QoQ), which led the growth for its key vertical banking, financial services and insurance (up 2.1% QoQ), otherwise the weakness was board-based across its business units.

Despite the softness in revenue growth, the IT service margin improvement was health at 16.4% (up 40 bps QoQ), which is again coming at the back of wage revision (two-monhs) in Q4.

The new management has called out few strategic initiatives and is focused on accelerating profitable growth for the company. The immediate priority is to proactively chasing large deals and scaling potential accounts, while keeping consulting and AI services on top.

Although, the management indicated of having seen some green-shoots and demand recovery within discretionary consulting space, however, it requires more consistency and growth to build any concrete view. Additionally, the weak Q1 guidance (-1.5% to +0.5%) is not encouraging and it still reflects pain across its growth levers.

Valuations and outlook:

We believe, the revenue conversion still remains a challenge for the company, given its exposure to discretionary areas (including consulting) is quite meaningful. The slower large deal ramp ups, delay in executions, and lack of immediate mega deal alternatives to plug those gaps would certainly keep the top-line growth unstable.

We are baking in revenue growth flat and 5% YoY CC with margin improvement of 40 bps and 50 bps for FY25E and FY26E, respectively.

We estimate revenues/earnings compound annual growth rate of 2.0%/5.1% over FY24-FY26e.

The stock is currently trading at 19 times FY26e, we are assigning price/earning of 19x to FY26e with a target price of Rs 440.

With that we assume coverage on Wipro with a “Hold” rating.

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