Wipro Sees Cautious Customers in Weak 2Q; Cutting FVE to INR 460, but Shares Still Appealing

Narrow-moat Wipro reported a mixed second quarter. While the firm beat our top-line expectations, operating margins and earnings per share came in considerably lower than what we forecasted. Wipro's earnings contrast with Tata Consultancy Services results from earlier this week, which were all-around strong, lending to a fair value raise. In addition, Wipro's guidance for the third quarter was more conservative than we were bracing for even after factoring in overall macroeconomic uncertainty. All things considered, we are lowering our fair value estimate for the IT services firm to INR 460 per share from INR 500 per share. With shares down 2% upon results, this still leaves Wipro within attractive four-star territory. Despite cutting the fair value upon near term concerns, we think Wipro will benefit from overall vendor consolidation as well as margin expansion in the long run. This gives us confidence in our belief that Wipro is undervalued amidst current conditions