IGI Logo

Wipro posted subdued operating performance in Q1 – revenue declined 1.2% QoQ to US$2.63bn (-1.0% CC), closer to the lower end of mgmt. guidance. IT Services EBITM expanded by 10bps to 16.5%. Deal intake stayed weak at US$3.3bn in Q1 (-11.8% YoY CC; book-to-bill: ~1.3x). After seeing improvement in the growth trajectory in previous three quarters, growth momentum weakened in Q1, implying need for further perseverance to beget a consistent performance. The demand environment has not seen any material change. Discretionary spends remain muted, as clients stay cautious. Mgmt. believes Wipro is in a better position now vs start-Q1; it guides for -1% to 1% revenue growth in Q2, indicating slight improvement, albeit in line with our estimate. We cut FY25-27E EPS by 0.6-1.6%, factoring in the Q1 performance. Wipro rallied ~12%/23% in last 1M/3M, outperforming broader markets by ~8%/~11%. We downgrade Wipro to REDUCE, given near-term growth challenges and full valuations, retaining TP of Rs525/sh at 19x Jun-26E EPS.

Results summary

Wipro’s IT Services revenue declined 1.2% QoQ (-1.0% QoQ CC) to US$2.63bn, closer to the lower end of management guidance and below our estimate of US$2.65bn. IT Services EBITM expanded by 10bps QoQ to 16.5%, slightly above our estimate of 16.3%. Overall EBITM expanded by 50bps QoQ to 16.4%. Of the 7 verticals, 5 reported a sequential decline in CC terms. ENU, Manufacturing, Health, Communications, and Tech saw a decline of 6.3%, 3.0%, 2.8%, 1.8%, and 0.5%, whereas Consumer, and BFSI reported growth of 1.6%, and 0.5%, respectively. BFSI has now grown for two consecutive quarters. Americas 1 was the only strategic market unit to post growth, up 0.4% QoQ CC, whereas Americas 2, Europe, and APMEA saw a decline of 0.7%, 1.4%, and 4.2%. Overall deal TCV stood at US$3.3bn (book-to-bill at 1.3x), and large-deal TCV was US$1.2bn (10 large deals). Total headcount grew 0.1% QoQ to 234,391. Attrition was stable QoQ at 14.1% vs 14.2% in 4QFY24. What we liked: Margin resilience, sustained momentum in Capco, healthy cash conversion (~92% OCF/EBITDA). What we did not like: QoQ decline (in CC) in 3 of the 4 strategic units, and 5 of the 7 verticals.

Earnings call KTAs

1) There was no significant shift in the demand environment during the quarter. Discretionary spending remains soft. 2) The management suggested some recovery in discretionary spending in BFSI (particularly in Americas 2), as reflected in the sequential growth for a second consecutive quarter and the continued momentum in Capco (3.4% QoQ). 3) Americas 1 grew 0.4% QoQ, on the back of recovery in growth in Consumer and Communications. 4) America 2 declined 0.7% QoQ. Deal booking (grew 12.1% YoY) and healthy deal pipeline grant confidence to the management on growth returning in the medium term. 5) Europe and APMEA remained soft, with sequential decline of 1.4% and 4.2%, respectively. The management indicated that the deal pipeline remains healthy in Europe and focus stays on improving conversion. It is reviewing its growth strategy for APMEA. 6) ENU and Manufacturing businesses remain soft. ENU softness was largely due to culmination of some large programs. 7) It expects IT Services EBITM to sustain with upward bias; it also expects fixed price productivity, pyramid improvement, overhead optimization, and achieving synergy benefits from acquired entities. 8) The company rolled out iAspire, an AI-powered career development platform, to aid in the career progression of employees. It has provided foundational training to over 225,000 of its employees and advanced AI training to another 30,000 employees.

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354