Wipro Stock Research Report

Continued problems in manufacturing, energy & utilities

Wipro’s (WPRO) 0.6% QoQ CC revenue was ahead of our and consensus estimates. BFSI-led growth was in line with the results announced so far in the sector, marking third consecutive quarter of BFSI vertical growth for WPRO. Q2FY25 saw good execution with 3/6 verticals showing positive QoQ growth, net headcount addition, 14.5% YoY large deal TCV uptick and 35bps QoQ margin expansion. However, WPRO faces the problem of all verticals/ segments not growing simultaneously in harmony and that still persists. There was continued weakness in manufacturing, energy & utilities. Europe is experiencing client-specific issues. Q3FY25 guidance at -2% to 0% QoQ CC is muted, pencilling in higher furloughs, contrary to what peers have indicated, partially due to Capco led additional furloughs. Maintain REDUCE with a revised TP of INR 500 (from INR 520 earlier) at 20x P/E on Q3FY26E- Q2FY27E EPS.

Growth ahead of estimates led by BFSI

Wipro’s IT services reported QoQ CC growth of 0.6%, ahead of I-Sec/ consensus estimate of -0.7%/0%,lying within the guided range of -1% to 1% QoQ CC for Q2FY25. Dollar growth stood at 1.3%. The growth was broad based led by: 1) BFSI/technology & communication/ consumer: 2.7%/ 1.6%/ 0.3% QoQ CC. Improved BFSI show is in line with the results announced so far, led by Americas. Energy & utilities and manufacturing segments were down 3.7%, 2% QoQ CC. Management sees opportunities in energy sector from cost takeout and vendor consolidation. These two verticals have been the pain areas for Wipro for the last 4-5 quarters. However, there is opportunity in automotive and SDV. New customer addition at 28 has been at a 10-year low.

Margin uptick on account of good execution

EBIT margin at 16.8% was up 35bps QoQ with 1 month worth of wage hikes. Employee cost as % of revenue was flat QoQ. Subcontracting cost was down 30bps QoQ (at 11%). SG&A was down 10bps QoQ. Offshoring was up 190bps QoQ. FPP was down 90bps QoQ. Wage hike was carried out w.e.f. Sep’24.

Muted guidance impacted by furloughs and client-specific challenges

Company’s revenue growth guidance for Q3FY25 was muted at: -2% to 0% CC impacted by seasonal furloughs, lower working days and client-specific challenges in Europe. Margin is estimated to be in a narrow range for the near term.