Sell Wipro Ltd for the Target Rs.230 by Motilal Oswal Financial Services Ltd
Deals deliver; conversion a key monitorable
Margins likely to remain range-bound
* Wipro (WPRO) reported 1QFY26 IT Services revenue of USD2.5b, down 2.0% QoQ CC, above our estimate of 2.5% QoQ decline. It posted an order intake of USD4.9b (up 25.6% QoQ), with a large deal TCV of USD2.6b (up 51% QoQ). EBIT margin of IT Services was 17.3% (est. 17.5%). PAT stood at INR33b (up 6.7% QoQ/10.8% YoY) vs. our est. of INR32b. In INR terms, revenue was flat YoY, EBIT declined 1%, and PAT grew 9.8% YoY. In 2QFY26, we expect revenue/EBIT to grow 1.1%/3.1% and PAT to remain flat YoY.
* We believe improvement in execution and sustained conversion of deal TCV to revenue will be key for a constructive view. We reiterate our Sell rating on Wipro with a TP of INR230, implying 18x FY27E EPS.
Our view: Solid deal wins offer 2H hope
* Deal TCV strong, but revenue acceleration still a wait: WPRO reported strong TCV of USD4.9b in 1QFY26 (up 26% QoQ/51% YoY), including two mega deals in BFSI. While wins reflect success in vendor consolidation and offer better revenue visibility for 2H, near-term execution remains weak, with a muted 2Q guidance of -1% to +1%. As seen through FY24-25, deal conversion remains a key monitorable.
* We build in the midpoint of guidance for 2Q and ~1.5% CQGR in 2H as large deal ramp-ups kick in. That said, the weak exit from FY25 and soft start to FY26 (services down 2% QoQ CC in 1QFY26) may weigh on the full-year trajectory, and we model a 1.3% YoY CC revenue decline for FY26E.
* Europe showing early signs of stability: Management indicated that Europe is beginning to stabilize, with some client-specific issues now resolved. The Phoenix deal (won in 4Q) is expected to start contributing from 3QFY26. However, a broader demand recovery remains uneven, and the region's improvement is likely to be gradual.
* Margins stable, but downside risk persists as ramp-ups begin: Services EBIT margin declined 20bp QoQ to 17.3%. We believe WPRO is at the upper end of the range and further gains could be limited, particularly due to upfront investments required in large deal ramp-ups in 2H. The company expects to offset pressures through AI productivity, G&A optimization, and better utilization, but we see limited room for further upside from current levels. We estimate 17.1%/17.4% services EBIT margin for FY26/27E.
Beat on revenue and margins in line; deal TCV up 26% QoQ
* IT Services revenue at USD2.5b was down 2.0% QoQ in CC (reported USD revenue down 0.3% QoQ), above our estimate of 2.5% QoQ CC decline.
* In 1QFY26, BFSI and Consumer were down 3.8/4.0% QoQ CC. Health was up 0.5% QoQ CC, whereas Technology was up 0.4% QoQ CC.
* 2QFY26 revenue guidance is -1% to +1% in CC terms.
* Americas1 grew 0.2% QoQ CC, while Europe and Americas2 declined by 6.4%/1.7% QoQ CC.
* IT Services EBIT margin was 17.3% (down 20bp QoQ), in line with our estimate of 17.5%.
* PAT was down 6.7%QoQ/up 10.8% YoY at INR33b (against our est. of INR32b).
* WPRO reported deal TCV at USD4.9b in 1QFY26, up 25.6% QoQ/51.3% YoY, while large TCV at USD2.6b was up 51% QoQ/131% YoY.
* Net utilization (excl. trainees) was up 40bp at 85% (vs. 84.6% in 4Q). Attrition (LTM) was up 10bp QoQ at 15.1%.
Key highlights from the management commentary
* The quarter began with macroeconomic uncertainties, which kept demand muted. Clients prioritized initiatives around cost optimization and vendor consolidation.
* Despite tight discretionary budgets, outsourcing and contract renewals have enabled the company to expand its wallet share.
* WPRO has guided for -1% to +1% QoQ CC revenue performance in 2QFY26.
* Management indicated that 2HFY26 is expected to be better than 1H, as some deals are currently in transition and are likely to stabilize over the next 3-6 months.
* Capco reported 6% YoY growth, led by strong performance in Latin America, with bookings crossing USD1b. Growth was broad-based across Insurance, Asset Management, and Energy sectors.
* The company secured 16 large deals, including two mega deals in BFSI. Many of these deals were driven by vendor consolidation.
* Deal closures provide strong revenue visibility for 2HFY26.
* Ramp-ups in large deals may exert near-term pressure on margins due to upfront investments, especially in talent acquisition.
* A healthy pipeline exists in Europe. The Phoenix deal won in 4Q is expected to start contributing to revenue from 3Q onwards.
Valuations and view
* We model a 1.3% YoY CC revenue decline for FY26E, factoring in a soft start (1Q services revenue down 2.0% QoQ CC), muted 2Q guidance, and a gradual recovery in 2H as large deal ramp-ups begin to reflect in revenue. While strong deal TCV and early signs of stabilization in Europe prompt a slight upward revision to our FY26/FY27E estimates (by ~2%), we see limited room for margin expansion from current levels.
* Further improvement in execution and sustained conversion of deal TCV to revenue will be key for a constructive view. We reiterate our Sell rating on WPRO with a TP of INR230, implying 18x FY27E EPS.
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