As Q4 earnings exceeded expectations, Wipro shares rise by more than 2%. Should you buy, sell, or hold?

In response to the IT services company’s better-than-expected fourth-quarter earnings, investors responded with a rise of more than 2% in Wipro shares on Monday.

The company’s shares were up 2.46 percent to Rs 464 on the Bombay Stock Exchange (BSE) at roughly 10.50 am.

Wipro’s 5% increase in net profit for the January–March quarter exceeded Street estimates, but brokerages were concerned that the IT major’s recovery might take some time due to ongoing cost-cutting measures, a headcount decline, and sluggish guidance.

The company’s sales also topped expectations, albeit being mostly steady on the quarter at Rs 22,208.3 crore as opposed to the street forecast of Rs 22,117 crore. The company’s net profit increased 5% on-quarter to Rs 2,835 crore in January-March, above the market prediction of Rs 2,748 crore.

The firm increased its EBIT margins by 40 basis points in a row to 16.4 percent thanks to operational efficiency. The management has maintained its revenue outlook for Q1 FY25 at -1.5 percent to 0.5 percent going forward.

Wipro’s slow growth forecast is what puts brokerages like JP Morgan, Nomura, HSBC, and UBS in a precarious situation. UBS interprets the Q1 FY25 projection as a sign of impending resurgence, while Nomura thinks it shows discretionary weakness.

Wipro continues to be rated lower by both Nomura and HSBC, with target prices of Rs 410 and Rs 385, respectively.

Wipro issued a warning, stating that although discretionary demand is still difficult, the rebound in BFSI (+2.1% q-q) is partially attributable to the reversal of furloughs saw in 3Q. Wipro’s 1Q FY25F revenue growth projection of -1.5% to +0.5% q-q in cc supports our assessment, notwithstanding solid order booking, according to Nomura.

However, HSBC emphasized Wipro’s ongoing loss of market share since it believes operational improvement is still some time off. Wipro’s growth acceleration also doesn’t seem to be coming soon, the brokerage claims, as cost-cutting efforts persist. Still, the brokerage is pleased that an inside veteran has been promoted to the position of CEO. Additionally, HSBC has a “reduce” call on Wipro, with a Rs 385 price target.

Morgan Stanley lowered the target price to Rs 421, stating that although the commentary points to a BFSI vertical stability, the rate of recovery is not entirely clear.

Additionally, UBS has a sell rating, with a Rs 430 target price. “Management’s optimism about a recovery in consulting on the basis of Capco’s order book during the previous quarter did result in some soft growth, but not enough to propel overall revenue growth.” Additionally, a lackluster Q1FY25 estimate suggests that resurgence is still a while off,” it said.

Nuvama Institutional Equities anticipates Wipro will underperform peers based on the slow growth projection, but it believes the downside risk is limited by the company’s low valuation and strong dividend yield. Nuvama is recommending a “hold” with a Rs 460 price target.