Wipro buyback provides little headroom
Shares of Wipro slumped 5.7% to Rs 354.50 apiece Wednesday on NSE, the most in six months, as analysts remained cautious over the software services provider despite meeting estimates in the quarter ended September.
The Bengaluru headquartered company’s guidance for the third quarter is better than expected. The new chief executive officer’s strategy indicates a focus on profitable growth, though the changes will only be gradual.
Wipro posted a 3.2% sequential growth in consolidated profit for the quarter ended September 2020, while IT services segment earnings were ahead of analysts’ estimates. It has also announced a share buyback of Rs 9,500 crore.
Consolidated profit increased to Rs 2,465.7 crore for the quarter, compared to Rs 2,390.4 crore in the previous quarter. Consolidated revenue increased 1.2% sequentially to Rs 15,096.7 crore.
The key positive takeaway from the IT major’s 2QFY21 report is healthy growth across most verticals with the exception of energy and technology (25.4% of revenue). Thus, nearly 75% of the revenue has shown healthy traction, driving increasing confidence on sustainability of improving revenue growth.
The operating margin of the company’s IT services business in the quarter was 19.2%, an improvement of 20 basis points over the previous quarter and 110 basis points on year.
The share buyback also reflects continuing initiatives on cash return to shareholders. There would be high probabilities of 100% acceptance of its buyback 237.5 million equity shares, or 4.16% of paid-up equity, taking the cue from the company’s previous buyback programs.
The repurchase price has been set at Rs 400 per share, a 6.25% premium to Tuesday’s closing price.
Given the acceleration in spending on cloud and cloud-related technologies, Wipro’s growth trajectory would
improve from its historical levels in FY2022/FY2023.
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