Better order book, strong deal pipeline and the company’s continued focus on cost optimisation should help the company fare better. The management also highlighted that the consumer, technology and communications verticals (about 35 per cent of FY20 revenues) will be more stable, compared to other verticals in the coming quarters.
The caveat, however, is weaker visibility on other verticals, including banking, financial services and insurance (BFSI), which accounts for over 30 per cent of Wipro’s revenue. The same holds true for most other domestic IT companies. This is a reason for analysts being sceptical of the strong deal and margin momentum continuing and thus, refraining from upgrading the stock.
The Bloomberg data shows only three of 29 analysts polled after Q1 results have upgraded the stock. Of the remaining, four have a "buy", 20 have a "neutral/hold" and two have a "sell" rating on the stock.
Sanjeev Hota, head of research at Sharekhan, says: “Though there are positives in Wipro’s Q1, we believe receding of headwinds in certain pockets like BFSI, the sustainability of margin performance, and building up of large deal engines will be key parameters before we upgrade the stock.” Sharekhan currently has a "hold" rating on the stock.
Analysts at Motilal Oswal Securities have also maintained their "neutral" rating, saying “before turning constructive on the stock, we await a refresh of the company’s strategy and further evidence related to execution".
Therefore, how the new CEO strategises broad-based growth for Wipro will be crucial. The Street will also see if the margin and deal trends sustain in the September quarter, and will be watchful of the management commentary, all of which should be deciding factors for the stock’s re-rating.