Monday 22 April 2013

News Hour: Five reasons why Wipro may be under pressure in near term


NEW DELHI: Reacting to disappointing set of numbers in its quarterly results, WiproBSE -7.95 % shares plunged over 10 per cent in trade on Monday to mark its biggest fall since October 2008.

According to analysts, Q4 results were slightly below estimates, while Q1FY14 guidance was disappointing, at negative to 1.5 per cent growth.

Wipro continues to struggle with its recovery and does not give any definitive signals thatit is about to turn the corner in the next six months, fear experts.

Wipro's total revenues for the quarter ended March 31 stood at Rs 11,026 crore, up marginally from Rs 11,025 crore in the previous quarter, while its consolidated net profit was at Rs 1,729 crore, up 0.7 per cent from Rs 1,716 crore in the previous quarter.

However, what disappointed the Street most was the tepid revenue growth guidance for 1QFY14, which was lower than street as well as industry estimates.

JPMorgan downgraded the stock to 'neutral' from 'overweight' post the Q4 results. However, moderate valuations may still see the stock give 10 per cent plus returns over the next 9-12 months, added the JPMorgan note.

The global investment bank has a 12-month target price of Rs 369.05 on the stock. JPMorgan believes that the company is likely to rebound in FY15.

"We still think the process is right and the results should follow the right process but we find it difficult to put a time-line on the inflection point in Wipro's performance," said the JPMorgan note.

Going forward, weakness in spending environment, further rupee appreciation against the dollar, and continued supply side pressures is likely to weigh on margins and may keep the stock under pressure.

Brokerage firm Dolat Capital continues to maintain its sector underperformer call on Wipro owing to its dismal FY12/13 performance and moderate outlook for FY14, as evident from Q1 guidance.

Dolat recommends 'Reduce' rating on the stock, with a target price of Rs 335 valued at 12x of its FY15E earnings.

We have collated five data points from Dolat Capital reports as to why Wipro may remain under pressure in near-term:

Not walking the talk: Wipro has been repeatedly claiming of improvement in efficiency and focused strategy on booming technology areas but has been slowest growing company in our coverage group. About 50 per cent of revenues (BFS, Telecom and Retail) segment are down on their revenue run rate on YoY basis. It has also guided muted for Q1, raising further question on any recovery in near term.

(Source: economictimes.indiatimes.com)

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