Reduce WiproLtd for the Target 170 by Emkay Global Financial Services Ltd
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Wipro logged a weak revenue performance in 1Q, on delayed ramp-ups of previously won large deals, continued weakness in select BFSI and Healthcare accounts, and elongated client decision cycles amid a challenging macro environment. IT Services revenue declined 1.4% qoq to $2.6bn (-1.2% CC), in line with our estimates. IT Services EBITM declined 130bps sequentially to 16.0%. Deal intake stood at ~$3.4bn in 1Q (including 13 large-deal bookings worth ~$1.6bn in total), with a book-to-bill of 1.3x. A few deal decisions have slipped into 2Q, while the pipeline continues to remain robust. Per management, traditional cost-optimization and vendor-consolidation deals remain competitively priced, with AI-led productivity commitments embedded upfront, while net-new AI transformation, advisory, and data modernization engagements support premium pricing and higher margins. It guided for -1.5% to 0.5% qoq CC revenue growth in 2Q, lower than our estimate. It aspires to maintain margins in a narrow 17-17.5% band over the medium term through automation, AI-led productivity, operational efficiencies, and pyramid optimization, while continuing to prioritize strategic AI investments. We tweak our FY27E EPS by ~0.6% and largely retain FY28/29E EPS, after factoring in the 1Q performance. We lower TM to 12x, considering continued weakness in organic revenue growth. We retain REDUCE and cut TP by 15% to Rs170 (from Rs200 earlier) at 12x Jun-28E EPS.
Results summary
Wipro reported revenue of $2.6bn, down 1.4% qoq (-1.2% qoq CC), in line with our expectations. IT Services EBITM declined 130bps qoq to 16.0%, vs our estimate of 16.6%, driven by salary increase, ramp-up of earlier large deals, and ongoing AI investments, partially offset by rupee depreciation and operational efficiencies. Overall EBITM declined 130bps qoq to 16.0%. The company signed large deals with TCV of $1.6bn. Overall order booking stood at $3.4bn (book-to-bill of ~1.3x). Total headcount was up 0.4% qoq at 243,044. Attrition (TTM IT services excluding BPS) increased 10bps qoq to 13.9%. Wipro declared an interim dividend of Rs2/share. What we like: Healthy deal intake. What we do not like: Margin miss, softness in BFSI, Healthcare, and EMR.
Broad-based weakness across verticals, partly offset by Consumer and Tech
The decline in revenue growth was led by Financial Services (-1.2% qoq CC), Healthcare (-2.6%), and EMR (-3.6%), partially offset by growth in Consumer (0.7%) and Technology and Communications (0.2%). BFSI was impacted by delayed large-deal ramp-ups and slower client decision-making, while Healthcare remained impacted by sustained structural and demographic pressure in the US payer/provider ecosystem and evolving member-onboarding services.
Americas and Europe remained weak, with APMEA cushioning the impact
The company restated its Americas segments wef Apr-26, realigning LatAm/Canada customers and subsuming Hi-tech and Airports into Americas 1. Among strategic market units, APMEA grew 4.4% qoq CC, while Europe, Americas 1, and Americas 2 declined 0.9%, 2.3%, and 2.5%, respectively.
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