They believe the stock is expensive and the earnings performance was largely on the expected lines, and hence already priced in. Plus, the recent rally in expectation of the buyback also overlooked the growth outlook.
“With the stock trading at 21.6 times, its 12-year high valuation, which we believe is partly driven by expectations of the share buyback, there is no material change in near-term growth outlook and our belief that Wipro continues to have the weakest growth profile among its peers,” said Sumeet Jain of Goldman Sachs.
Jain has a ‘sell’ rating on the stock with a target price of Rs 277. That means a potential downside of 26 per cent from the previous close.
Wipro spiked over 12 per cent in the last four sessions after it unveiled its plans to launch a buyback offer. Investors lapped up shares in hopes that the buyback will be attractively priced but was disappointed as the company set the price at Rs 400. Eventually, the stock fell nearly 6 per cent in Wednesday’s session.
“We believe once the buyback support is behind, the stock should re-rate lower reflecting its weaker growth fundamentals where Wipro is expected to continue to lose market share to its larger peer TCS,” Jain said in his report.
Wipro said its Q2 net profit was Rs 2,470 crore, down 3.4 per cent YoY from the same quarter last year. Gross revenue stood at Rs 15,110 crore, an increase of 1.4 per cent QoQ and a decrease of 0.1 per cent YoY.
In dollar terms, revenue was $2.1 billion and net profit at $335.3 million.
JP Morgan also is ‘underweight’ on the stock with the target in a similar region at Rs 270. This is despite the broker revising its earnings estimates for the IT major.
“We upgrade revenue estimates by 2 per cent, 4 per cent and 5 per cent over FY21, FY22 and FY23, respectively. The company displayed solid execution and provided strong guidance for Q3. Strategy changes are sensible but gradual,” said the analyst at JP Morgan.
The company expects revenue from its IT Services business to be in the range of $2.02 billion to $2.06 billion. This translates to a sequential growth of 1.5 per cent to 3.5 per cent.