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Revenue below our expectations: Wipro posted rupee revenue of Rs 22,831cr, down by 1.5% QoQ and a growth of 6% YoY. Revenue for IT service business in USD came in at USD 2,779mn, a de-growth of 2.1% QoQ and flat growth of 0.8% YoY. Amongst geographies, US and Europe both witnessed slowdown and that is reflected in the sequential trend wherein the American region (~60% of revenue) de-growth of 2.7% QoQ while Europe (~29-30% of revenue) de-grew by 0.9% QoQ. Amongst industry verticals banking, consumer, health and energy reported de-growth in the range of 1.5-4% QoQ, while technology and manufacturing saw some recovery and grew by 1.1% and 2.7% QoQ. Further, in the near term management is seeing softness in demand and believes that banking demand has yet to pick up.

Steady margins: Wipro’s EBIT stood at Rs 3,658cr, a de-growth of 2.9% QoQ while a growth of 14.3% YoY. The company maintained its EBIT margin at 16% as recommended but it saw a decrease by 22bps QoQ and improved by 116bps YoY. We believe EBIT margin was maintained at 16% but the de-growth in EBIT was because of lower revenue growth.

Attrition continued to moderate: Wipro’s attrition too moderated like other peers. Attrition came in at 17.3% in Q1FY24 as compared to 19.2% in Q4FY23 (a decline of 190bps QoQ) and 23.3% in Q1FY23 (a decline of 600bps YoY).

Steady Order Book: Wipro won total deals worth USD 3.7bn and its large deals momentum remains strong as it won deals of USD 1.2bn, higher by 9% CC. Going ahead management plans is to win more deals as client focus is on optimizing cost and faster returns.

Management Guidance: For Q2FY24 as well management has guided muted growth for IT services wherein revenue is expected to be in the range of USD 2.72bn-USD 2.8bn and growth between -2% to +1%. Muted projection of growth is due to softness in demand and prevailing uncertainty and challenges that still persist for the IT sector. Further, margins are expected to be in the similar line of 15-16% as the company’s plan is to keep constant focus on margin improvement led by improving utilization and managing cost.

Key highlights: 1) Management is seeing some softness in demand. 2) Plan is to further improve margins by managing fixed cost, improving utilization and cost optimization measures. 3) Artificial Intelligence is in great demand and is useful in many ways so Wipro has invested USD 1bn for the technology and it would be largely organic. 4) Plan is to train its employees for the newer technologies specially AI 5) Clients are demanding cost optimization and vendor consolidation on deals as well as strong demand for Cloud transformation.

Outlook & Valuation: In the short term, the whole IT may continue to feel pressure due to softness in demand and ongoing macro challenges. In the case of Wipro, long term is expected to improve as demand is set to get back on track as well as investment in Automation and Gen AI based products & solutions will aid growth. However, in the short term, it is still struggling for a stable revenue growth trend and also management remains cautious and has projected soft revenue for Q2FY24 as clients discretionary spending to be delayed. So, these concerns are still hovering around and thus we maintain a Hold rating with a target price of Rs 432.

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