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Wipro Q4 a let-down for investors; Should you sell?

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Wipro slipped over 4 per cent in early Thursday because of its lower than expected March quarter earnings.

The scrip was down 4.09 per cent at Rs 275.45 at around 9.20 am. It opened at Rs 277 and hit high and low of Rs 279.80 and Rs 274.40, respectively, so far. Benchmark Sensex was up 40 points, or 0.12 per cent, at 34,541 at around the same time.

Brokerage firm Kotak Securities said, “Wipro has been unlucky to some extent due to the insolvency of a couple of clients and further challenges in acquired entities. However, this performance also highlights a weak client profile and mix of business. We cut FY2019-20E EPS for Wipro by 6-7 per cent.”

The third-largest software exporter posted 6.64 per cent fall in net profit at Rs 1,803 crore in January-March over the preceding quarter. Bottom line slipped 20.60 per cent on a yearly basis for the quarter under review.

What may disappoint investors further is Wipros lukewarm guidance. For April-June, it expects to clock revenue of $2,015-2,065 million compared with $2,062 million for the March quarter. It implies a sequential drop of 2.3 per cent at the lower end of the guidance band and a mere 0.2 per cent increase at the upper end.

During an interaction with reporters post results, CEO Abidali Neemuchwala made the point that growth will be stronger during the second quarter of the current fiscal following traction in digital projects. The company reported growth of 27.3 per cent in digital revenue for FY18 and 9 per cent sequential one for the March quarter.

The management attributed the lower Q1 FY19 growth guidance to the revenue impact of insolvent clients and continued loss of customers in its HPS business. With respect to margins in Q1 FY19, the management identified headwinds in the form of one months impact of wage hikes and lower revenue due to client insolvencies and HPS disappointment.

Emkay Global Financial Services said, “We believe that while Wipro may be able to start delivering good growth on a qoq basis starting Q2 FY19, its performance for FY19 would continue to be well below industry/peers growth rate.”

The brokerage firm has Reduce rating on Wipro with a target price of Rs 250.

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