Why Wipro Shares are Falling

The quarterly earnings season has kickstarted with largecap IT companies TCS, HCL Tech and Wipro declaring their results.

TCS was the first one which beat street estimates on most fronts and surpassed expectations. The company's net profit crossed Rs 100 bn mark for the first time.

In financial year 2012, TCS made a net profit of Rs 105 bn. At present, TCS is reporting Rs 100 bn in profits in a single quarter! Let that sink in...

For HCL Tech too, the results were above estimates and the company saw an improvement in margins. The key highlight was it raised full year guidance for margins.

Post declaring results, shares of HCL Tech are trading 3% higher today.

That leaves us with Wipro.

Wipro's results were not so good, and the effect is already seen on its share price.

Shares of Wipro slumped 5.7% to hit a 52-week low of Rs 383 on the BSE today against its previous close of Rs 407.8.

That's not all. Wipro share price has remained under pressure in 2022.

Let's find out why this could have happened...

Wipro's September quarter results, a mixed bag

Yesterday post market hours, Bengaluru-based Wipro reported a 14.6% jump in its September 2022 quarter revenue at Rs 225.4 bn.

On a year-on-year (YoY) basis, the company's net profit fell 9.3% to Rs 26.6 bn. Net profit was weighed down by rising staff expenses and lower non-US earnings.

The company's operating margin in the IT services segment grew 16 basis points sequentially to 15.1%.

CFO Jatin Dalal said,

• We achieved margins of 15.1% in Q2 after absorbing the impact of salary increases and promotions.
  
  Our margin improvement was led by better price realisations and strong operational improvements in automation-led productivity.

Attrition dipped slightly, which is good. The voluntary attrition came in at 23%, down from 23.3% in the previous quarter. With this, Wipro recorded a third consecutive quarter of moderation in attrition.

A worrying highlight was its dull guidance for the December 2022 quarter, where Wipro is expecting a sequential growth of 0.5-2% in revenues.

Another worrying thing for Wipro is that margins have consecutively declined for the past eight quarters. This could be due to the acquisitions it made recently, which have led to a big reset at gross margin levels.

Other factors behind Wipro's freefall in 2022

The 5% decline in Wipro shares today is due to bad quarterly results. But if we take a longer horizon, Wipro share price has fallen in 2022 owing to other reasons.

To name a few, Indian IT stocks have experienced a sharp correction in 2022, partly due to concerns about a prolonged slowdown in US IT spending.

As the US Federal Reserve ramps up its fight against decades-high inflation, a growing number of economists predict a US recession within the next 12 months.

Another reason is high attrition rates. Most Indian IT firms reported an employee attrition rate of more than 20%.

Wipro is facing a rough time addressing this issue and thus employee costs have increased which has eventually affected the company's financial numbers.

Indian IT companies are also worried that tightening budgets at US and European clients bracing for a recession, will sharply hit their own profits after a pandemic-led boom.

A couple months ago, we wrote to you about why Wipro is under pressure and explained these reasons in detail. You can check it out here: Why Wipro Share Price is Falling.

Equitymaster's Technical View on Wipro

We reached out to Brijesh Bhatia, editor of premium recommendation service Fast Profits Report, on what he has to say about Wipro.

Here's Brijesh:

• As the company announced its quarterly results yesterday, the stock opened lower and is trading down over 5% today.
  
  I'm not getting into the results update and the reasons to find why Wipro is falling, but the stock is trading at the thin ice levels if we look from a technical angle.

Wipro Technical Chart

 

• The stock is trading down by 5% and most of the result play traders exited their positions in the first tick as highlighted by the volume bar.
  
  Similar volumes were witnessed on 21 July 2022 opening tick, and the price action reversed northwards. The only difference between the two bars is the closing of the bar.
  
  The close of 21 July bar was higher while today's bar close is near the low.
  
  Interestingly, there is no follow-up selling after the first 10 mins of the opening today.
  
  As per the Volume-Spread Analysis (VSA) theory, the bar with the highest volumes acts as support and resistance for further momentum.
  
  In the previous volume bar, the low set the tone for the bullish momentum. The momentum above 400 will decide the strength of today's opening bar.

How Wipro has Performed in 2022

Wipro share price opened the day 4% lower today at Rs 390 against its previous close of Rs 407.75.

As the session progressed, shares dipped further and fell 5.7% to touch a low of Rs 383.

Wipro share price has a 52-week high quote of Rs 739.8 touched on 14 October 2022 and a 52-week low quote of Rs 383 touched today.

In 2022 so far, shares of Wipro are down a whopping 46%!

Here's a table comparing Wipro with its peers.

Comparative Analysis

Company	Wipro	TCS	Infosys	HCL Tech	Tech Mahindra
ROE (%)	20.5	44.1	29.4	22.2	22.1
ROCE (%)	21.8	60.2	40	26.6	26.5
Latest EPS (Rs)	21.1	106	52.9	50	54.9
TTM PE (x)	19.4	28.9	27.4	19.1	18.6
TTM Price to book (x)	3.3	11.4	7.6	4	3.6
Dividend yield (%)	1.5	1.4	2.1	4.4	4.4
Industry PE (x)	26.1
Industry PB (x)	6.7

Data Source: Ace Equity, Equitymaster

About Wipro

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

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)

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

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

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

You can also compare Wipro with its peers on our website:

Wipro vs TCS

Wipro vs Infosys

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...