Wipro Q1FY25 earnings

Wipro Stock Plummets Nearly 8% Following Disappointing Q1 FY25 Earnings, Analysts Cut Forecasts

Wipro, a leading IT firm in India, saw its shares fall nearly 8% following the release of its Q1FY25 financial results, which disappointed investors and led several brokerage firms to lower their earnings forecasts. The company’s revenue dropped 1.1% quarter-over-quarter (QoQ), with varied performance across different sectors.

Key Points

Stock Performance:
- Wipro’s share price dropped nearly 8%, reaching ₹513.25 per share, after disappointing Q1FY25 results.
Brokerage Ratings:
- Nomura: Maintained ‘Sell’ rating, raised target price to ₹600 per share.
- Citi: Maintained ‘Sell’ rating, increased target price to ₹495 per share from ₹455.
- Morgan Stanley: Maintained ‘Underweight,’ raised target price to ₹459 per share from ₹421.
- Nuvama Institutional Equities: Retained ‘Hold’ rating with a price target of ₹530 per share.
- Motilal Oswal: Reiterated ‘Neutral’ rating, viewing current valuation as fair, with a price target implying 20x FY26E EPS.
- Kotak Institutional Equities: Retained ‘Sell’ rating with a target price of ₹460 per share.

Financial Performance:
- Gross Revenue: $2,635.8 million, down 1.1% QoQ and 3.8% YoY.
- IT Services Revenue: $2,626 million, down 1.2% QoQ and 4.9% YoY (constant currency terms: -1% QoQ and -4.9% YoY).
- EBIT Margin: Increased marginally to 16.5% in Q1FY25 from 16.4% in Q4FY24.
Sector Performance:
- BFSI: Grew by 0.3% QoQ, maintaining positive momentum.
- Energy and Utilities, Manufacturing, Healthcare, Communications: Declines of 7%, 4.2%, 2.6%, and 1.2% QoQ, respectively.
- Consumer and Communications: Observed renewed growth potential.
- Regional Performance:
  - Americas 1: Revenue increased by 0.4% QoQ in constant currency.
  - Americas 2: Declined by 0.7% QoQ.
  - Europe and APMEA: Decreased by 1.4% and 4.2% QoQ, respectively.
- Capco: Achieved a growth rate of 3.4% QoQ.

Management’s Guidance:
- Flat IT services revenue growth for the September ending quarter at $2,600 million to $2,652 million, translating to sequential guidance of (-)1.0% to +1.0% in constant currency terms.
Margin and Cost Management:
- Margin improvement driven by better utilization, productivity in fixed-price projects, and overhead optimization.
- Management anticipates continued margin enhancements from these factors.
Contract Value:
- Total contract value (TCV) for the quarter was $3.3 billion, a 9% decrease QoQ, with a large TCV of $1.2 billion.

Who Will Lose:

Shareholders:
- Current Shareholders: Those who already own Wipro stock will see the value of their investments decrease.
- Long-term Investors: Investors holding Wipro for the long term may be concerned about future performance and potential further declines.
Employees:
- Stock Option Holders: Employees with stock options might see the value of their compensation decrease.
- Morale Impact: Disappointing earnings and stock price decline can impact employee morale and confidence in the company.
Company Management:
- Reputation: Company leadership may face criticism for poor performance and may be under pressure to improve results.
- Performance Metrics: Bonuses and other performance-based incentives for executives could be affected.
Market Sentiment:
- Investor Confidence: Negative earnings can lead to reduced confidence in the company’s ability to grow and perform well in the future.
- Analyst Ratings: Lower earnings forecasts by analysts can further negatively impact market sentiment and the stock price.

Who Will Gain:

Short Sellers:
- Profit from Decline: Investors who have shorted Wipro stock will profit from the decline in stock price.
Competitors:
- Market Opportunity: Competitors may gain an advantage if customers or investors lose confidence in Wipro and seek alternatives.
- Talent Acquisition: Competitors might attract talent from Wipro if employee morale and confidence are shaken.
Potential Buyers:
- Buying Opportunity: New investors may see the lower stock price as a buying opportunity, anticipating a future recovery.
Analysts and Research Firms:
- Engagement: Analysts providing insights and updates on Wipro’s performance might see increased engagement from clients and investors seeking advice.

Conclusion

Wipro’s Q1FY25 results were disappointing, leading to a significant drop in its share price and mixed reactions from brokerage firms. The company’s revenue decline across several sectors and regions, coupled with ongoing cost management efforts and a marginal increase in EBIT margin, reflect a challenging yet cautiously optimistic outlook for the upcoming quarters. Analysts remain divided, with some maintaining sell ratings and others holding a more neutral stance, highlighting the need for investors to closely monitor Wipro’s performance and strategic initiatives.

FAQs

Why did Wipro’s share price fall nearly 8%?
- Wipro’s share price fell nearly 8% due to disappointing Q1FY25 financial results that fell short of investor expectations.
What were Wipro’s Q1FY25 revenue and net profit figures?
- Wipro reported a gross revenue of $2,635.8 million, down 1.1% QoQ and 3.8% YoY. The IT services segment generated revenue of $2,626 million, down 1.2% QoQ and 4.9% YoY.
How did different sectors perform in Wipro’s Q1FY25 results?
- The BFSI sector grew by 0.3% QoQ, while sectors like energy and utilities, manufacturing, healthcare, and communications saw declines of 7%, 4.2%, 2.6%, and 1.2% QoQ, respectively.
What is Wipro’s management’s guidance for the next quarter?
- Wipro’s management expects flat IT services revenue growth for the September ending quarter at $2,600 million to $2,652 million, translating to sequential guidance of (-)1.0% to +1.0% in constant currency terms.
What are brokerage firms’ ratings and target prices for Wipro?
- Brokerage firms like Nomura, Citi, Morgan Stanley, and Kotak Institutional Equities have maintained sell or underweight ratings with target prices ranging from ₹459 to ₹600 per share.
What factors contributed to the marginal increase in Wipro’s EBIT margin?
- The marginal increase in EBIT margin to 16.5% in Q1FY25 from 16.4% in Q4FY24 was driven by better utilization, productivity in fixed-price projects, and overhead optimization.
What is the total contract value (TCV) for Wipro in Q1FY25?
- The total contract value (TCV) for Wipro in Q1FY25 was $3.3 billion, a 9% decrease QoQ, with a large TCV of $1.2 billion.