Wipro Shares Tank 9% After Q3 Results; Morgan Stanley Downgrades, Others Flag Margin Risks

Shares of Wipro plunged over 9 per cent in early trade on Monday following its Q3 results, after brokerage firm Morgan Stanley downgraded the stock and cut its price target to one of the lowest on the Street on January 19.

Morgan Stanley cut Wipro’s rating to “underweight” from “equalweight” and lowered its price target to Rs 242 from Rs 270 earlier. In its note, the brokerage said Wipro’s improved deal wins and strong margin performance in the past had helped narrow the company’s price-to-earnings multiple gap with peers over the last 12 months.

However, Wipro’s guidance for the fourth quarter points to slower conversion of deals into revenue and weaker growth visibility for the next financial year compared with peers. As a result, Morgan Stanley

expects the valuation discount to peers, which had recently narrowed, to widen again.

The company has guided for constant currency revenue growth of 0% to 2% for the fourth quarter, versus analysts’ earlier expectations of 1% to 3%. Jefferies also reiterated its “underperform” rating on Wipro with a price target of Rs 220, citing softer deal bookings and delays in project ramp-ups that have led to weaker-than-expected growth guidance.

Jefferies added that Wipro’s margins are likely to remain under pressure due to recent acquisitions and ongoing deal ramp-ups. Of the 47 analysts tracking the stock, only 11 have a “buy” rating, while 21 recommend “hold” and 15 suggest “sell.” Wipro shares had closed 2.5% higher at Rs 266.8 on Friday ahead of the results, but its US-listed ADRs ended over 7% lower after the earnings and guidance announcement.