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Recovery remains distant 3Q guidance points to another weak quarter; deal conversion remains key to a 4Q recovery

* Wipro (WPRO) reported 2QFY27 IT Services revenue of USD2.6b, flat QoQ CC, above our estimate of 0.5% QoQ CC decline. It posted an order intake of USD2.6b (down 22.9% QoQ cc), with a large-deal TCV of USD0.7b (down 58.6% QoQ cc). Adj. EBIT margin came in at 16.5% (est. 16.4%). Adj. PAT stood at INR32b (down 4.5% QoQ) vs. our estimate of INR34b.

* In INR terms, revenue/adj. EBIT grew 9.8%/8.6%, while adj. PAT was flat YoY in 1HFY27. In 2HFY27, we expect revenue/adj. EBIT/adj. PAT to grow 5.1%/3.7%/1.1% YoY. We have kept our estimates broadly unchanged. We value WPRO at 11x FY28E EPS and reiterate our Neutral rating with a TP of INR170.

Our view: WPRO could lag peers in FY27

* Revenue beat, but deal bookings remain weak: WPRO reported flat QoQ CC revenue growth in 2QFY27, ahead of our estimate of a 0.5% decline. However, TCV declined 22.9% QoQ to USD2.6b, while large deal TCV fell 58.6% QoQ to USD674m. Management attributed the decline to two deals where paperwork was delayed, with signing expected in 3Q. While the pipeline remains strong, conversion of these deals will be important for improving revenue visibility in 4Q. We expect WPRO to lag peers and witness a slightly negative growth year (vs. earlier estimate of flattish growth) in FY27.

* 3Q guidance remains weak; recovery depends on deal conversion: WPRO guided for -1.5% to +0.5% QoQ CC revenue growth in 3QFY27, with seasonal furloughs and fewer working days weighing on performance. We build in -0.5% QoQ CC (mid-point of the guidance) for 3QFY27. Management expects bookings to improve in 3Q and indicated that successful deal closures could support 4Q revenue visibility. However, with the overall demand environment largely unchanged, we would like to see sustained deal conversion before building in a meaningful recovery in growth.

* BFSI and Consumer drive growth, while Healthcare remains a drag: BFSI and Consumer grew 1.0% and 2.6% QoQ CC, respectively, while EMR grew 1.0%. Technology & Communications and Healthcare declined 2.6% and 3.8% QoQ CC, respectively. Management remains optimistic about BFSI and Technology, which are expected to compete for the position of the fastestgrowing vertical over the coming year. Healthcare continues to face pressure from US policy changes and lower discretionary spending, although management expects some seasonal recovery in 3Q.

* Margins expand, but a return to the 17–17.5% band may take time: EBIT margin expanded 50bp QoQ to 16.5%, in line with our estimate, supported by operational improvements and rupee depreciation, partly offset by continued investments in the business. While operational levers should support further improvement, investments in AI capabilities and the AI-native unit could limit near-term margin expansion. We estimate EBIT margin of 16.4%/16.9% for FY27E/FY28.

* AI investments gaining traction, but revenue benefits still evolving: WPRO’s AInative unit has over 2,000 engineers and is beginning to contribute to outcome-based engagements. Management highlighted wins across BFSI, Healthcare, and Energy, alongside investments in AI data centers, AI foundry services, physical AI, and design-to-manufacturing. We believe these investments should help WPRO participate in emerging AI-led opportunities; however, their contribution to overall revenue growth is yet to be seen.

Valuations and view

* We continue to model another weak year for WPRO, with slightly negative FY27E CC revenue growth, reflecting a soft 1H and an uneven recovery across verticals. We also expect margin recovery to remain gradual, given continued AI investments.

* We have kept our estimates broadly unchanged. We value WPRO at 11x FY28E EPS and reiterate our Neutral rating with a TP of INR170.

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