Morgan Stanley Slams Wipro with 'Underweight' Downgrade, Slashes Target

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AuthorAnanya Iyer|Published at:
Morgan Stanley Slams Wipro with 'Underweight' Downgrade, Slashes Target
Overview

Morgan Stanley downgraded Wipro shares to "underweight," slashing its price target to ₹242. The brokerage cited concerns over slower deal-to-revenue conversion and weaker growth visibility compared to peers for the upcoming fiscal year. Jefferies also maintained an "underperform" rating, pointing to softer deal bookings and margin pressure from recent acquisitions. With only 11 buy ratings among 47 analysts, sentiment remains cautious.

Wipro's guidance for the fourth quarter has drawn sharp criticism from market analysts. The IT services giant projected constant currency revenue growth between 0% and 2%, a figure that falls below the 1% to 3% expectations previously held by many market watchers. This reduced outlook suggests a more challenging conversion of recently won deals into tangible revenue streams and paints a dimmer picture for growth in the new financial year compared to industry peers.

Guidance Sparks Concern

This slower revenue conversion, coupled with weaker growth visibility, is expected to widen Wipro's price-to-earnings (P/E) multiple discount relative to its competitors, a gap that had recently narrowed. Jefferies corroborated these concerns, maintaining an "underperform" rating and a ₹220 price target. The brokerage highlighted softer deal bookings and delays in project ramp-ups as key reasons for the weaker-than-expected fourth-quarter guidance.

Margin Pressures Persist

Beyond revenue concerns, analysts foresee continued pressure on Wipro's margins. Recent acquisitions and the ramp-up of new deals are anticipated to weigh on profitability. This challenging environment is reflected in the stock's analyst coverage, where out of 47 analysts, only 11 recommend a "buy." Twenty-one analysts suggest a "hold," while a significant 15 rate the stock as a "sell."

Analyst Consensus Remains Divided

In Friday's trading session, Wipro shares closed 2.5% higher at ₹266.8 prior to the results announcement. However, the company's American Depositary Receipts (ADRs) experienced a sharp decline, falling over 7% in pre-market trading as investors reacted to the subdued guidance. This divergence underscores the heightened caution among international investors regarding Wipro's near-term performance outlook.

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