Wipro's strong deal wins offset by weak revenue and margin decline

ET Intelligence Group: Wipro reported sustained momentum in order bookings and large deal wins for the June quarter.

However, its revenue fell 1.4% sequentially to $2,614.5 million after a marginal improvement seen in the previous three quarters while operating margin contracted by 130 basis points to 16%, the lowest since the December 2023 quarter when it was at the same level.

The country's fourth largest software exporter continued to show weakness in execution as clients took more time to roll out projects.The company's management iterated in a post-result media call that it did not notice any material change in demand scenario from the previous quarter.

In addition, the deal flow worth $3,370 million during the June quarter was supported by cost optimisation drive and vendor consolidation by clients.

In this backdrop, its September quarter guidance continues to be cautious as it expects revenue to either drop by 1.5% or improve marginally by 0.5% sequentially.

This spells no respite for the stock, which has fallen by 15% since April 16 when the company declared the March quarter numbers.Notwithstanding the short term growth challenges, the company's annual revenue trend has started looking less bleak, helped by a steady flow of orders and a series of acquisitions.

The extent of revenue decline moderated significantly to 0.3% in FY26 from 3.2% in FY24.

Additionally, the year-on-year difference in the trailing 12 month (TTM) revenue turned positive at $32 million in June quarter for the first time in 11 quarters.

To retain this trend reversal in the coming quarters, Wipro will require to speed up project ramp ups.

The management stated that project execution has taken speed in some of the recently won large deal wins.

This will be a key factor to monitor in the near term.132450327Unlike the larger peers including Tata Consultancy Services (TCS) and HCL Technologies (HCLTech), Wipro has not yet committed any capital expenditure (capex) in creating its own data centre capacity.

Instead, it has been focussing on the designing and deploying solutions for clients through partnerships in the artificial intelligence (AI) ecosystem.

While this approach prevents any short term stress on the balance sheet arising from debt arrangements required for the AI related capex, investors would keenly watch the effectiveness of different AI strategies over the next few quarters.At Thursday's closing price of ₹177.8 on the BSE, Wipro's stock traded at a trailing price-earnings (P/E) multiple of 13.4.

It is at a discount to the 10-year average multiple of over 18, reflecting weak investor sentiment.

A revival in the valuation depends upon the how quickly the company's revenue and profitability improve. ...