'Weak and lacklustre': Why Jefferies is disappointed with Wipro earnings as ADRs fall nearly 3%

Wipro's March quarter earnings drew a sharp reaction from Jefferies, which called the performance weak and guidance lacklustre, even as the company's US-listed ADRs fell nearly 3% post results. The brokerage said Wipro's fourth-quarter numbers missed expectations on multiple fronts: revenue growth came in at just 0.2% quarter-on-quarter in constant currency terms, near the lower end of guidance.

Profit also disappointed, with net income at Rs 3,500 crore, down about 2% YoY, below estimates.

Guidance disappoints Street

The key concern, according to Jefferies, was the company's outlook for the June quarter. Wipro guided for revenue growth in the range of 0% to -2% quarter-on-quarter in constant currency, which the brokerage termed weaker than expected.

Notably, the guidance already factors in contributions from recent deals and acquisitions, implying that the underlying organic business could decline further, raising concerns about near-term growth visibility.

The earnings miss was largely attributed to softness in core segments. The BFSI vertical declined 1.3% sequentially, while healthcare fell 4.4%, reflecting weakness in payer-related spending.

Geographically, the Americas 2 region saw a 2.6% sequential decline, emerging as a key drag. In addition, revenue from Wipro's top client dropped sharply by 8% quarter-on-quarter, highlighting client-specific challenges.

While the technology vertical grew 5.3% sequentially, aided by the Harman acquisition, and consumer and energy segments posted modest gains, these were insufficient to offset broader weakness.

Wipro's operating margins remained largely stable at 17.2–17.3%, though slightly below estimates. Higher employee costs, including wage hikes and integration of the Harman business, weighed on margins, partially offset by currency benefits and lower depreciation costs.

Deal momentum slows

Jefferies also flagged a slowdown in deal momentum. Total bookings declined 11% YoY in constant currency, with large deal bookings falling 20% and non-large deals down 15%, indicating continued pressure on discretionary IT spending.

Buyback offers limited comfort

The company announced a Rs 15,000 crore buyback at Rs 250 per share, representing a 19% premium to the current market price. While the size was slightly ahead of expectations, Jefferies said the pricing was broadly in line with past buybacks and unlikely to offset concerns around growth.

Jefferies has maintained an 'underperform' rating on the stock, with a price target of Rs 180, implying a potential downside of about 14%.