Brokerage firms are cautious on
Wipro after the IT major posted a disappointing revenue performance in Q4 and below-par growth guidance of -1 percent to 1 percent for the June quarter. The company reported a 38.4 percent year-on-year (YoY) jump in net profit at Rs 2,493.9 crore for the fourth quarter ended March 2019. In the corresponding quarter last year, the company posted a net profit of Rs 1,803 crore.
The company, however, posted better-than-expected revenue growth for the March-quarter. Wipro’s dollar revenue improved 9 percent YoY to $2.2 billion in the quarter ended 31 March. Revenue grew 7 percent on a QoQ basis.
It also announced a bonus of one free share for every three shares held by shareholders and approved a Rs 10,500 crore buyback plan under which it will acquire up to 32.3 crore shares at Rs 325 per share. Analysts believe the share buy-back will boost earnings per share and return on equity for FY20.
The announcement of share buyback, combined with Re 1 per share of interim dividend, pegs the company's total payout at 124 percent of net income.
Reacting to the results, most brokerages remained 'neutral' on the stock. However, they expect FY20 to be better for the company.
According to Reliance Securities, Wipro’s FY20 forecast growth outlook appears better than FY19, even as BFSI growth is likely to be slower given a high base and macro volatility. Improved IT margin performance along with continuing cash return in the form of the buy-back is likely to restrict any major decline in stock price despite tepid revenue growth.
The brokerage maintains 'hold' recommendation on the stock with a revised target price of Rs 300 (from Rs 255 earlier) to factor in healthy cash return to the shareholders.
However, Prabhudas Lilladher remained cautious.
"We believe the company will have to invest in digital and people to participate in the strong demand environment. Wipro’s management aggressive cost rationalization keeps us skeptical about their participation in demand environment and hence will restrict revenue momentum," Lilladher said in a report.
The brokerage maintained 'hold' rating on Wipro after Q4 results with a target price of Rs 247. They believe that capital allocation strategy restricts downside risk in the near term.
Regarding the buyback offer, the brokerage expects participation from promoters’ group, which will have a 5 percent acceptance ratio for minority shareholders. Buyback will provide a cushion to the stock price in near-term, however, due to muted revenue growth as compared to peers, Wipro will remain an underperformer, they added.
Meanwhile, Motilal Oswal Financial Services was also not very bullish on the stocks. They cut their revenue estimate by 1.3 percent for FY20, mainly led by a slower-than-anticipated start to the fiscal.
"We expect the IT Services EBIT margin to stabilize at 18-19 percent and the overall margin to pick up as losses in smaller segments reduce. Over FY19-21, we expect dollar revenue CAGR of 6.6 percent and earnings CAGR of 11 percent." They maintain neutral rating with a target price of Rs 280 per share.Edelweiss expects Wipro to continue to grow below industry, justifying current valuation and maintain 'hold' with target price of Rs 261 per share.