Buyback boosts Wipro but brokerages cautious on muted Q4 numbers

Wipro shares gained over 3 percent on April 28 as investors cheered the buyback announcement at 19 percent premium. The stock was quoting at Rs 385 on the NSE, at 10 am.

The company’s Board of Directors on April 27 approved buyback of equity shares worth Rs 12,000 crore from shareholders. The company plans to buy up to 26,96,62,921 equity shares – being 4.91 percent of total number of equity shares on a proportionate basis by way of a tender offer at a price on Rs 445 per equity share.

That said, the company’s Q4 results sparked caution among brokerages. The company reported a 0.4 percent year-on-year (YoY) decline in consolidated net profit for the March quarter of FY 2023 at Rs 3,075 crore.

The IT services firm had reported a profit of Rs 3,053 crore in the previous quarter.

Its consolidated revenue from operations stood at Rs 23,190 crore, up 11.2 percent from Rs 20,860 crore in the year-ago period, Wipro told exchanges. In the December quarter, revenue stood at Rs 23,229 crore.

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Here is what brokerages have to say about the stock and the company after the March quarter earnings.

Kotak Institutional Equities

The research house has kept a “reduce” rating with a target of Rs 360 per share. The company reported a QoQ constant currency (CC) revenue decline of 0.6 percent, meeting lower end of its guidance band, it said.

It was a weak end to the year, however, the energy vertical helped to meet guidance.

The company’s guidance for 1QFY24 CC revenue decline of 1-3 percent was below Kotak’s expectations.

The only positive is the reasonable TCV. The brokerage expects Wipro to continue underperforming peers on revenue growth over FY24-25, while some margin improvement is likely to be consumed by the lack of growth leverage.

The firm has cut its FY2024-25e revenue estimates by 1-2 percent, leading to a 3-4 percent EPS cut.

The buyback plan, however, can provide a stabilising force to the stock price in the near term.

Nirmal Bang

The brokerage firm has cut its revenue estimates by 3 percent across FY24-FY26 and trimmed the margin, leading to a 4-5 percent cut in PAT. However, incorporating the impact of the buyback at the EPS level, the impact is very minimal.

Around 4.9 percent of the equity is being bought back. Nirmal Bang expects the buyback to provide support to the stock in the immediate term.

It maintains the target PE multiple at 13.5x on FY25E EPS (30 percent discount to the target multiple of TCS, the brokerage’s industry valuation benchmark) to arrive at a target price of Rs 350. It maintains its “sell” call on the stock.

Motilal Oswal

As the company posted weak earnings for the March quarter and guided for muted 1HFY24, the brokerage house expects FY24 organic growth to be one of the lowest among Tier-1 IT services peers, with margins below the management’s medium-term guided range of 17.0-17.5 percent.

It has cut the FY24E/FY25E EPS by 7.2 percent/4.4 percent to factor in weaker FY24 growth due to a lower exit rate in 4QFY23 and muted 1HFY24.

Motilal Oswal has maintained the “neutral” rating as it awaits: 1) further evidence of the execution of Wipro’s refreshed strategy, and 2) a successful turnaround from its struggles over the last decade before turning more constructive on the stock.

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