Wipro Delivers Its 'Best Ever' Quarter Results. Stock Soars 12% in 3 Days

Underscoring strong demand for India's outsourcing service providers, IT services company Wipro today reported a 35% year on year (YoY) jump in consolidated net profit to Rs 32.3 bn for the quarter ended 30 June 30 2021.

Wipro had posted a consolidated profit after tax (PAT) of Rs 23.9 bn in the same quarter last fiscal.

Its consolidated revenue from operations rose to Rs 182.5 bn from Rs 149.1 bn in the year ago quarter, resulting in an increase of 22.4%.

The company's IT services segment revenue was at US$2,414.5 m, an increase of 12.2% quarter on quarter (QoQ) and 25.7% YoY.

Wipro's quarter one numbers were ahead of the street's estimates. Analysts had expected Wipro to post a consolidated net profit of Rs 28.5 bn.

In constant currency terms, revenues grew to US$2.4 bn, a jump of 12% sequentially.

Commenting on the earnings, Wipro CEO Thierry Delaporte said,

• Despite the severe onslaught of the pandemic, we delivered our best-ever quarter, with secular growth across all SMUs, sectors and GBLs.
  
  Our sequential revenue growth of 12.2% was well ahead of the top-end of our guidance range, both organically and with Capco.
  
  Though in the early days yet, I am pleased with the way we have collaborated with Capco to build our joint go-to-market offerings and strategy.

On the operating front, the company's margin performance suffered likely due to wage hikes undertaken to retain talent. The consolidated operating margin shrank 220 basis points (bps) sequentially to 18.8%.

The attrition rate in the company jumped to 15.5% from 12.1% in the previous quarter.

Capco contributes 30% to the company's total revenues

In March, Wipro signed an agreement to acquire British management and technology consultancy Capco for US$1.5 bn to strengthen its position in the banking, financial services, and insurance (BFSI) sector, which contributes about 30% to the company's total revenues.

However, on a sequential basis, earnings before interest and tax (EBIT) margins declined by 320 bps to 17.8% on account of integration of low margin Capco business and several senior leadership hires during the quarter.

Also, during the quarter, Wipro closed eight large deals that resulted in US$7.2 m in new orders for the company.

The IT services major added two more clients in the US$100 m plus bracket and two each in the US$50 m plus and US$20 m plus categories.

Company's revenue guidance for the upcoming quarter

The company's management guided IT services revenue to be in the range of US$2.5-2.6 bn in the second quarter of the financial year 2022, which implies a 5-7% sequential growth.

The management remains confident of delivering double-digit organic revenue growth in the current fiscal.

Further, the company's management has reiterated its EBIT margin guidance of 17-17.5% for the year 2022.

That apart, Wipro surpassed its revenue guidance for the first quarter, which it hailed as its best ever, as it reported a 35.7% YoY increase in consolidated net profit.

This performance was aided by an acceleration in demand thanks to the cloud and digital transformation, and supported by the company's new business strategy.

Equitymaster's view on investing in the IT sector right now

We reached out to Richa Agarwal, senior research analyst and editor of the smallcap stock recommendation service, Hidden Treasure, for her view on the IT sector.

Here's what she has to say about investing in companies in the IT sector right now.

• Post pandemic, amid liquidity in the global markets and broad-based growth momentum, the IT sector and the stocks listed in it have had a dream run.
  
  While picking stocks in the industry, one should be mindful of relative growth and valuation of companies in the sector.

How the stock markets reacted to Wipro

Shares of Wipro opened the day at Rs 580 on the BSE and the NSE.

Its share price closed at Rs 577 (up 0.3%) on the BSE and Rs 577.8 (up 0.3%) on the NSE.

At its current price, it is trading at a P/E of 29.

The share touched its 52-week high of Rs 589 and 52-week low of Rs 233.8 on 16 July 2021 and 17 July 2020, respectively.

Over the last 30 days, the Wipro share price is up 2.2%. Over the last one year, the company's share price is up 155%.

About Wipro

Wipro is one of the leading global IT, consulting and business process services companies.

It's the third largest Indian player in the global IT services industry, in terms of revenue, after Tata Consultancy Services (TCS), and Infosys (Infosys).

Wipro was incorporated in 1945 as Western India Vegetables Product Limited. It was a consumer care product manufacturer till 1980 after which it diversified into the IT services business.

With effect from 1 April 2012, the company demerged its other divisions (consumer care and lighting, medical equipment, and infrastructure engineering) into a separate company called Wipro Enterprises Limited (WEL), to enhance its focus and allow both businesses to pursue their individual growth strategies.

Wipro's operations can be broadly classified into IT Services, IT Products, and India State Run Enterprise.

Wipro derives most of its revenue from the IT Services segment (96.8% in financial year 2020) under which it provides IT and IT enabled services to leading enterprises worldwide.

For more details about the company, you can have a look at Wipro factsheet and quarterly results on our website.

For a sector overview, you can read our IT sector report.

You can also compare Wipro with its peers.

Wipro vs TCS

Wipro vs Infosys

Wipro vs Tech Mahindra

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