Wipro slips 2% after Kotak Equities downgrades stock to ‘sell’, sees over 15% downside

The brokerage firm believes that the IT company’s valuations are expensive

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Shares of IT major Wipro declined over 2 percent to Rs 520 per share on February 28 after analysts at Kotak Institutional Equities downgraded Wipro to ‘sell’ from ‘reduce’ with a target price of Rs 440 per share following the stock’s sharp upmove in the last 3 months. The brokerage firm believes that the company’s valuations are expensive.

The stock of Wipro has surged over 30 percent in the past 3 months, as against 9 percent rise in the benchmark Sensex. Earlier, Wipro shares hit 52-week high of Rs 546 per share on February 19, 2024.

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“The stock is expensive at 21x FY26E earnings and trades at just 6-9 percent discount to Infosys and HCL Technologies despite weaker fundamentals. Wipro, on an average, has underperformed on revenue growth by ~5 percent versus Infosys and HCL Technologies on organic constant currency (cc) basis in the past 10 years,” analysts at Kotak wrote in a recent note.

Wipro faces multiple challenges, both internal and externa, said analysts, which have created headwinds to growth. Higher attrition in management personnel and muted mega deal announcements have been some key negatives. Apart from that, vertical have also struggled, notably
manufacturing where peers have done much better.

That said, the brokerage firm underlined that some risks to their call included that since Wipro has higher exposure to consulting, it will be the first segment to recover.

ALSO READ: Wipro and Nokia launch joint 5G private wireless solution to scale digital transformation

“Wipro expects double-digit revenue growth in Capco, primarily driven by conversion of order book to revenues. The company had healthy wins over the past few quarters and most of these are short-cycle deals. A sharper-than-expected recovery can lead to revenue and EPS upgrades,” they added.

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