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Wipro shares zoom 15% post Q1 results; brokerages raise target price

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Wipro Ltd share price zoomed 15 percent on Wednesday after the IT major reported 2.8 percent sequential rise in consolidated net profit for the first quarter of 2020.

Wipro shares zoom 15% post Q1 results; brokerages raise target price
Wipro Ltd share price zoomed 15 percent on Wednesday after the IT major reported 2.8 percent sequential rise in consolidated net profit for the first quarter of 2020. The stock surged soon after opening to hit an upper circuit of 15 percent at Rs 258.80 apiece.
The company on Tuesday had reported a consolidated net profit of Rs 2,390.4 crore, supported by other income and good operating performance. Consolidated revenue from operations declined 5.3 percent to Rs 14,922.8 crore, QoQ.
However, Wipro’s IT services reported a 4.6 percent sequential decline in revenue at Rs 14,595.6 crore impacted by lockdown in several countries. IT services' earnings before interest and tax (EBIT) during the quarter rose by 3.3 percent to Rs 2,782.2 crore while the EBIT margin increased 146 bps QoQ to 19.06 percent.
CLSA
CLSA believes margins were supported by lower variable pay and other direct costs (sub-contractor & travel), rupee depreciation and hedging gains were partially offset by higher provisions for doubtful debts.
“Aggressive cost control put in place in 1QFY21 should flow-through in 2Q as well but sustaining momentum over 2HFY21 could be difficult if revenue growth recovers. For instance, variable pay may be reinstated and sub-contractor costs could return if travel remains restricted. Thus, changes to our FY22/FY23 EPS forecasts are minor (sub-1 percent each) given our caution on its long-term margin outlook. The stock has moved c.19 percent over the past three months on hopes of a turnaround under the new CEO,” CLSA said.
The brokerage expects a potential buyback could limit the downside for the stock. CLSA maintained an Underperform rating but raised the target price to Rs 215 from Rs 210 per share earlier.
Credit Suisse
Credit Suisse upgraded the stock to Buy and raised the target price to Rs 260 from Rs 230 per share earlier as it feels that some part of the cost benefits will stay in the medium term.
The company continue to lag peers on growth, but is managing costs well, the brokerage said.
It raised FY21-23 EPS by 3-6 percent. Credit Suisse believes that margin resilience, attractive valuations and likely share buyback should help the stock.
Macquarie
Macquarie believes that the worst is likely behind but revenue growth may be gradual. It said that uncertainty persists in certain sectors of Wipro.
The brokerage maintained a Neutral rating raised target price by 5 percent to Rs 210 per share. It also raised FY21-22 EPS estimates by 2.6-7 percent.
Kotak Institutional Equities
Kotak Institutional Equities also upgraded the stock to Add and raised the target price to Rs 265 from Rs 220 per share.
“The stock trades at 12x FY22e earnings, implying negligible 2 percent growth to perpetuity. The upgrade is not predicated on the company reaching industry matching growth, while the upgrade is based on modest mid-single-digit revenue growth,” the brokerage said.
The brokerage house feels that the new CEO has a challenging task to turnaround the company.
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