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Growth recovery still elusive 2Q guidance points to another weak quarter; margins remain under pressure

* Wipro (WPRO) reported 1QFY27 IT Services revenue of USD2.6b, down 1.2% QoQ CC, in line with our estimate of a 1.3% QoQ decline. It posted an order intake of USD3.4b (down 2.4% QoQ cc), with a large-deal TCV of USD1.6b (up 12.9% QoQ cc). Adj. EBIT margin came in at 16% (est. 16.1%). Adj. PAT stood at INR34b (up 4.7% QoQ) vs. our estimate of INR34b.

* In INR terms, revenue/adj. EBIT/adj. PAT grew 10.6%/9.7%/0.6% YoY in 1QFY27. In 2QFY27, we expect revenue/adj. EBIT/adj. PAT to grow 8.1%/5.2%/1% YoY. We cut our FY27E EPS estimate by ~3.5%, primarily to factor in the weaker-than-expected 1Q margin performance and weaker 1H organic growth. We value WPRO at 11x FY28E EPS and reiterate our Neutral rating with a TP of INR160

Our view: Flat FY27 growth remains our base case

* Growth recovery still lacks clear evidence: 1QFY27 revenue declined 1.2% QoQ CC and the midpoint of 2Q guidance (-1.5% to +0.5% QoQ CC) points to another soft quarter. While management highlighted improving traction in BFSI, Technology, and Europe, some large deal closures and ramp-ups have slipped into 2Q. We believe demand remains constrained by longer decision-making and slower project execution, while AI-led productivity continues to limit growth from the existing business. We expect WPRO to lag peers, with FY27 likely to be another year of flat to slightly negative growth.

* Margin well below street estimates; recovery could remain under pressure amid continued investments: EBIT margin contracted 120bp YoY to 16.0%, impacted by wage hikes, large-deal ramp-ups, acquisition integration, and continued AI investments. Although management reiterated its 17.0-17.5% margin aspiration, it refrained from providing a timeline for recovery. We believe the remaining wage hike impact in 2Q, continued AI investments, and lower-margin deal ramp-ups are likely to keep margin recovery gradual. We estimate EBIT margin of 16.4%/17.0% for FY27E/FY28.

* AI-led productivity could keep pressure on the legacy business: Management acknowledged that AI is improving productivity across software development and is increasingly being embedded into large outsourcing deals. We believe productivity benefits will increasingly be passed on to clients as contracts come up for renewal, keeping pressure on revenue growth in the legacy services business.

* Recovery across verticals remains uneven: Technology & Communications continues to hold up well, while management expects BFSI to improve as recent deal wins ramp up. However, Healthcare remains weak due to spending pressure in the US payer and provider market, while EMR continues to face a soft demand environment despite a few recent wins. We believe recovery is still limited to a few pockets, with broad-based improvement in demand likely to take longer.

Valuations and view

* We continue to model another weak year for WPRO, with flat to slightly negative FY27E CC revenue growth, reflecting a soft 1H, slower deal ramp-ups, and an uneven recovery across verticals. We also expect margin recovery to remain gradual, as continued AI investments, the remaining wage hike impact in 2Q, and deal ramp-ups offset operational improvements.

* We cut our FY27E EPS estimate by ~3.5%, primarily to factor in the weaker-thanexpected 1Q margin performance and weaker 1H organic growth. We value WPRO at 11x FY28E EPS and reiterate our Neutral rating with a TP of INR160.

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