Wipro Ltd’s Stock Surges 13% on Monday Following Robust ADR Performance

In a notable turn of events, Wipro Ltd‘s American Depository Receipts (ADRs) experienced a remarkable 17% hike on Friday, paving the way for a robust 13% stock rally on Monday morning at domestic bourses. This surge, analysts assert positions Wipro uniquely among its IT peers, signaling potential green shoots in discretionary spending. However, industry experts urge caution, advocating for a more comprehensive evaluation before investors adopt an outright bullish stance on the company.

Wipro’s Strong Performance: A Closer Look

On Monday, Wipro’s stock soared by an impressive 13.10%, reaching a high of Rs 511.95 on the Bombay Stock Exchange (BSE). This surge adds to the IT giant’s consistent upward trajectory, with a remarkable 15% increase over the last month. Notably, this outperforms competitors, with HCL Technologies Ltd witnessing a 7% rise, Infosys Ltd at 5%, and Tata Consultancy Services Ltd at 2%.

Analyst Perspectives on Wipro’s Q3 Performance

Analysts highlight Wipro’s Q3 performance as a potential inflection point. The company’s revenue degrowth landed at the upper end of the guided band, marking a positive deviation from the past four quarters. JM Financial notes that Wipro’s consulting business, CAPCO, demonstrated double-digit booking growth, providing a quantitative sign of a rebound in discretionary spending. The rebound is particularly significant as CAPCO’s exposure to discretionary budgets had previously impacted Wipro’s performance negatively.

Mixed Analyst Sentiments

Despite the positive indicators, some analysts remain cautiously optimistic. Axis Securities emphasizes that Wipro has lagged in execution despite positive results and deal wins. While acknowledging potential recovery in FY25 due to strong deal wins, the lack of necessary visibility prompts a ‘Sell’ rating on the stock from Axis Securities.

HDFC Institutional Equities acknowledges Wipro’s trajectory as ‘recovering’ after a 6% drop in quarterly revenue over the past three quarters. However, concerns linger over deal market-share loss, broad-based declines within verticals, and a steep drop in T5 accounts.

Strategic Shifts

Wipro’s strategic initiatives include driving growth from its partner ecosystem, enhancing the operating profile through changes in the operating structure, and a focus on training and development. However, HDFC Institutional Equities maintains a ‘REDUCE’ rating on Wipro based on the current environment, emphasizing the need for caution.

Cost Control and Margin Beat

Kotak Institutional Equities notes that rigorous cost control efforts enabled Wipro to beat margins by 50 basis points. Despite positive commentary from the management, a YoY decline in Total Contract Value (TCV) and guidance for a revenue decline at the mid-point for 4QFY24 raise questions about a quick demand recovery. Kotak Institutional Equities retains a ‘REDUCE’ stance with a fair value of Rs 430.

Analysts’ Outlook on Wipro’s Future

Motilal Oswal anticipates Wipro’s FY24 revenue growth rate to be among the lowest in the tier-1 IT services pack. Concerns also arise regarding Wipro’s margin potentially falling below the management’s medium-term guided range of 17-17.5%. The broking firm retains a ‘Neutral’ stance, awaiting further evidence of the execution of Wipro’s refreshed strategy before turning more constructive on the stock, with a target of Rs 520.

Nuvama Institutional Equities echoes a similar sentiment, expressing disappointment in Wipro’s Q3FY24 performance and Q4FY24 guidance. Despite recognizing signs of gradual improvements, the anticipation of a YoY decline in the top line for FY24 places Wipro in a challenging position compared to its peers. The brokerage suggests a target of Rs 460, highlighting Wipro’s inexpensive valuation and high dividend yield, which may limit the downside potential.

As Wipro’s stock continues its impressive rally, the market remains cautiously optimistic, with analysts highlighting both positive and concerning aspects of the company’s recent performance. The road ahead for Wipro seems to involve a delicate balance of executing its strategic initiatives, addressing concerns raised by analysts, and providing clearer visibility for sustained growth. Investors are advised to closely monitor developments and consider a nuanced approach amid the dynamic landscape of the IT sector.

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