Wipro shares trade near 52-week low after disappointing Q1. What brokerages recommend?

Shares of Wipro Ltd plunged more than 2% in Thursday's opening deals

Shares of Wipro Ltd plunged more than 2% in Thursday's opening deals, trading near its 52-week low level after the company missed analyst estimates for June-quarter profit on Wednesday, as higher employee-related costs pushed up the information technology servicesfirm's overall expenses.

The Indian IT company’s net profit for the June quarter declined 20.7% to ₹2,563 crore from ₹3,232 crore in the year-ago period. The revenue for the June quarter grew 19% annually to ₹21,529 crore on the back of a strong demand environment for cloud, digital engineering, and cyber security services.

Wipro forecast higher revenue growth from IT services on the back of a strong project pipeline, and said margins likely bottomed out after higher expenses dented June-quarter profit.

“Wipro's 1QFY23 results missed estimates, with the 200bps QoQ margin decline being the key disappointment. Deal TCV at US$1.1bn, strong net hiring, and healthy 2Q guidance of 3-5% QoQcc were encouraging. We lower our estimates by 1-6% and expect Wipro to deliver a 6% EPS CAGR in FY22-25. Weak EPS growth, a high risk of cuts to consensus estimates, and heavy reliance on acquisitions should weigh on the stock," said analysts at Jefferies while maintaining underperform rating on Wipro shares with a target price of ₹360.

Wipro's expenses during the first quarter ended June 2022, which includes employee cost, jumped almost 23% to ₹18,647.5 crore, with attrition rate at 23.3%. The operating margin in the IT services segment decreased by 200 basis points to 15% quarter-on-quarter.

“We cut FY23/FY24/FY25 EPS estimates by 6.5%/1.8%/2.8%, considering the Q1 miss. Management commentary remains fairly confident on revenue acceleration ahead. However, it shied away from giving any timeline on the margin returning to the mediumterm target range of 17-17.5%, which remains an irritant," said another brokerage Emkay. It has maintained Buy tag on the IT stock with a revised target price of ₹490 (from ₹500 earlier).

Indian top IT services companies' June-quarter earnings started on a weak note, with TCS and HCL Technologies also missing their first-quarter profit estimates. Infosys is yet to announce its Q1 earnings.

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