Wipro plunges over 8% as Q2 results fail to impress Dalal Street

By ECONOMICTIMES.COM | 23 Oct, 2013, 09.46AM IST

Even though the growth in second quarter was high by Wipro's standards, analysts believe momentum has been slow in returning.

Wipro Ltd.

BSE

492.95

-21.95(-4.26%)

Vol: 693963 shares traded

NSE

492.85

-21.95(-4.26%)

Vol: 4225945 shares traded

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NEW DELHI: Wipro LtdBSE -4.23 % slipped as much as 8.4 per cent in morning trade on Wednesday, after the IT major reported its results for the quarter ended September 30 which clearly lagged performance compared to the top tier players.

WiproBSE -4.23 % grew at its fastest pace in two years in the September quarter by posting 2.7 per cent sequential growth in dollar terms. However, even though growth in the second quarter was high by Wipro's standards, analysts believe momentum has been slow in returning.

The Bangalore company forecasts that revenue would grow between 1.8% and 3.7% in the three months to December, a seasonally slow quarter for India's $76 billion ( 4.7 lakh crore) technology services export sector, ET reported.

At 09:40 a.m.; Wipro recouped some of the morning losses and was trading 4.5 per cent lower at Rs 492.45. It hit a low of Rs 471.55 and a high of Rs 514.50 in trade today.

The pickup in growth has been aided to a large extent by the revival in demand for technology services in the United States. The company added 45 new clients during the quarter but the active clients decreased to 942 from 946 in1QFY2014.

At the consolidated level, Wipro's revenue came in at Rs 10,992 cr, up 13 per cent QoQ. During 2QFY2014, Wipro's IT services EBIT margin grew considerably by 250 bps QoQ to 22.5 per cent, as currency benefits and the improved execution offseted the wage hike impact.

On the consolidated level, EBIT margin grew by 220 bps QoQ to 20.4 per cent, while net profit (PAT) stood tall at Rs 1,942 up 19 per cent QoQ.

"Some improvement in growth is definitely there but it continues to lag peers 2.7 per cent QoQ $-growth in Sep-13 came in-line with expectations albeit once again at bottom end of peer comparables," CLSA said in a note.

The global brokerage firm maintains 'underperform' rating on the IT major, but has raised its 12-month target price to Rs 515 from its previous target price of Rs 480.

Considering the fact that Wipro has been trading closer to 52-week levels of Rs 519.50. The company will required to deliver a consistent growth in line with peers if not better to retain its valuation on bourses.

Dolat Capital continues to maintain their sector underperformer call on Wipro owing to its sustained underperformance in H1FY14 and discouraging outlook for FY14 as evident from its Q3 guidance, weak employee growth and miss from its long held aspiration of growing inline with peers which still seems tough target to achieve.

"We believe that the growth rate would converge in FY15 for Tier I vendors but Wipro would still remain an underperformer given few drivers of growth in its portfolio," added the note.

The brokerage firm recommends 'Reduce' rating on the stock with a target price of Rs 500 valued at 14x FY15E earnings which is 15 per cent discount to InfosysBSE -0.68 %.


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