Citi Downgrades Wipro To Sell Due To Slowing Organic Growth

Analyst Surendra Goyal said the company's fourth-quarter results "disappointed" and the first-quarter forecast suggests almost "flattish organic growth at the mid-point of the guidance."

Wipro's fourth-quarter revenues rose 2.4 percent quarter-over-quarter to $1.882 billion, lower than Citi's estimate of $1.903 billion. EBIT margin declined about 10 bp quarter-over-quarter to 20.1 percent versus Citi's 20.6 percent estimate. The margins fell despite net utilization increase of 230bp quarter-over-quarter and rupee depreciation of about 1.5 percent.

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Citi's first-quarter revenue forecast about 1 percent to 3 percent quarter-over-quarter growth implies revenue of $1.901 billion–$1.939 billion. In addition, wage hikes and an acquisition are expected to hurt the first-quarter margins.

"We expected 1Q revenue guidance to be ~2.5 to 4.5 percent qoq growth including ~$50 million contribution from Viteos/HPS acquisitions. The 1Q revenue guidance suggests ~1–3 percent qoq growth; ex-acquisitions, we estimate this to be around -1 percent to +1 percent growth qoq. This suggests a weak start to FY17E postponing hopes of growth converging with peers," Goyal noted.

Looking Ahead

Meanwhile, the analyst said company's 2020 revenue target is "ambitious" at $15 billion revenue with 23 percent EBIT margin.

"The 2020 target appears ambitious; Wipro needs to deliver a few good quarters to increase investor comfort on the same," Goyal wrote in a note.

Commenting on the capital returns, although Wipro's buyback of up to Rs.25 billion at Rs.625 per share was announced and could support the stock near term, Goyal feels that the weakness in the business will likely offset the figures.

ADRs of Wipro closed Wednesday's regular trading at $12.96. Prior to Thursday's open, the stock was down 4.71 percent.