Wipro Share Price Drop 8% on Disappointing Q1 Earnings

Wipro's share price dropped by up to 8% on July 22 following a weak Q1 FY25 performance, which saw a 1% quarter-on-quarter (QoQ) decline in consolidated revenue. This downturn is particularly troubling in comparison to its competitors, TCS and Infosys, which posted QoQ growth of 2-3%.

Wipro Share price down about 8.5% as of 09:46 am IST, making it the top loser on the Nifty IT index, which is down 0.4%.

As a result of these disappointing figures, Wipro's US-listed shares (ADRs) plummeted by 11.5% on Friday night. The company's constant currency revenue declined for the sixth consecutive quarter, with the 1% drop falling short of the expected flat growth. For the September quarter, Wipro projects its IT Services revenue to range between $2,600 million and $2,652 million, indicating a potential sequential change of -1% to 1% in constant currency terms.

Both the Q1 FY25 revenue and the Q2 FY25 guidance from Wipro were below market expectations. Citi Research noted that the Q2 guidance is likely to disappoint investors who had higher hopes.

Wipro reported a 5.21% year-on-year (YoY) increase in consolidated net profit, reaching ₹3,036.60 crore in Q1, compared to ₹2,886 crore in the same quarter the previous year. However, the company's consolidated revenue decreased by 1.1% from the previous quarter to ₹21,963.8 crore, falling short of Moneycontrol's forecast of ₹22,229 crore. Additionally, Wipro revised its revenue guidance for Q2 FY25, suggesting a possible sequential decline of 1% or a slight growth of up to 1% in constant currency terms.

Wipro's market capitalization fell to ₹2.69 lakh crore on the BSE, with a total of 5.82 lakh shares traded, resulting in a turnover of ₹30.12 crore. In terms of technicals, Wipro's relative strength index, or RSI, is at 67.3, indicating the stock is neither oversold nor overbought. The IT stock is trading above its 50-day, 100-day, 150-day, and 200-day moving averages, but below its 5-day, 10-day, and 20-day moving averages.

Brokerage Nomura issued a 'Buy' recommendation for Wipro with a target price set at ₹600. Meanwhile, Citi has maintained its "sell" rating on the stock with a price target of ₹495, citing Wipro's growth lag compared to its peers, which will likely affect its valuation. Morgan Stanley also rates Wipro as "underweight" with a price target of ₹459, noting early signs of recovery but emphasizing the need for better execution to capitalize on these potential improvements.

Brokerages have suggested that an early recovery in discretionary demand might enhance Wipro's future performance. Nuvama pointed out that Wipro has significant ground to cover to achieve industry-average growth. Despite anticipating continued underperformance relative to peers, Nuvama highlights Wipro's low valuation and high dividend yield as factors that mitigate downside risks. The brokerage has maintained its 'Hold' rating on Wipro, raising the target price to ₹530 from ₹460 due to growth in the BFSI segment and a pickup in consumer business.

"Wipro’s slow start to the year is disappointing. While there are signs of gradual improvement, particularly in consulting, BFS, and consumer segments, reaching industry-average growth will be challenging. We expect Wipro to underperform its peers, but its low valuation and high dividend yield limit downside potential. We maintain our ‘HOLD/SN’ rating," said Nuvama.

It's worth noting that Wipro received several upgrades ahead of its earnings report, including a double-upgrade from CLSA earlier this month. Of the 44 analysts covering Wipro, 23 have a "sell" or equivalent rating, 12 recommend "hold," and nine suggest a "buy."