No respite in sight for Wipro

Unlike Infosys, Wipro put up a dismal show in the quarter ended March. Weak organic growth, muted show in the US market, and flat performance of the finance solutions vertical pulled down Wipro's overall revenues. The company's constant-currency revenues grew 2.7 per cent, lower than expectations of three-four per cent. This growth is also at the lower end of its own forecast of two-four per cent.

Analysts say a large part of the revenue growth (2.2 per cent) came from acquisitions, meaning a measly 0.5 per cent organic growth in the quarter. More, the revenue growth forecast of one-three per cent for the June quarter will fail to cheer investors. Analysts estimate two-2.2 per cent of this growth will come from acquisitions, meaning an organic revenue growth of 0.8 to one per cent in the on-going quarter. Operating margin fell 10 basis points sequentially to 20.1 per cent and was pulled down by the integration of low-margin acquisitions.

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Management commentary on the road ahead was cautiously optimistic. Though it indicated that deal wins were strong, the management also said incremental information technology spends were under pressure. While the company's buyback price of Rs 625 is at a premium over Wednesday's closing price of Rs 601, the small size of the buyback (just 1.62 per cent of total equity) is unlikely to provide any support to the stock price.

Against this backdrop, most analysts could cut earnings estimates, which could put additional stress on the stock. Though the stock trades at 16 times FY17 estimated earnings, sustained improvement in financial performance is a pre-requisite for any re-rating. Wipro's rupee revenues though were aided by a stronger dollar. Consolidated rupee revenues grew 6.1 per cent sequentially to Rs 13,742 crore, in line with the Bloomberg consensus estimate of Rs 13,507 crore.

Net profit was flat sequentially at Rs 2,235 crore on the back of weak margins, higher tax rate, and lower 'other income'. Net profit fell short of Bloomberg expectations of Rs 2,350 crore. Though the management aspires to double revenues to $15 billion by 2020, this appears a tall task as it has posted weak single-digit revenue growth in FY16 and FY15. The company needs to push its growth to sectoral levels for the Street to turn more positive on the stock.

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