Wipro Earnings: Major Customers Size Up Bookings as Sector Performances Diverge; Shares Attractive

Narrow-moat Wipro 507685 reported first-quarter earnings slightly below our expectations on the top line due to near-term macroeconomic softness, especially in the Americas market. However, we are encouraged by the continued addition of major customers in the top bracket contributing over $100 million of revenue annually. Overall, we believe that once customers are acquired, they are sticky and likely there to stay. Plus, we think larger customers are stickier by nature.

We are maintaining our fair value estimate of INR 450 as we uphold our confidence in the firm’s ability to benefit from digital transformations in the long term, even with near-term macroeconomic headwinds. Altogether, we think shares are attractive and fitting for long-term investors wanting exposure to the moaty IT services sector.

First-quarter revenue increased by 1% year over year to INR 228 million in constant currency. Growth across industry verticals showed divergent trends. Energy and manufacturing sectors drove results growing by 10% and 9% year over year, respectively, while communication and technology sectors showed revenue declines on a year-over-year constant-currency basis. The discrepancy across sectors was largely due to the changing degree of caution in spending among verticals. Despite economic headwinds, Wipro’s European business unit recorded a strong year-over-year growth of 5.5% in constant currency. We are confident that Wipro has ample opportunity in Europe as European companies embrace offshore contracting.

Operating margins remained resilient expanding to 15% compared with 14% in the prior year quarter, due to productivity improvement, better talent utilization, and enhanced fixed cost management. Diluted earnings per share for this quarter was slightly above our expectations at INR 5.12.