Wipro's Profitability Bottoms Out in Q1 as Pipeline Stronger Than Ever; Lowering Shares to INR 500

Narrow-moat Wipro started its fiscal 2023 with a gloomy earnings miss despite a slight revenue beat, as a culmination of pricing pressure and less-than-ideal employee attrition and utilization as well as subcontractor mix proved stronger-than-hefty IT services demand. Management stressed that it believes this is the trough of profitability headwinds, and we believe this is a fair assessment. However, this quarter's results have affected the level of margin expansion we forecast in the subsequent quarters. As a result, we are decreasing our fair value estimate to INR 500 ($6.50 for U.S. ADR shares) from INR 520 ($6.80 for U.S. ADR shares). Shares are down 2% today upon results and even with our fair value estimate adjustment, we continue to believe Wipro shares are attractively priced, as we stress to investors our faith in strong IT services demand over the next five years thanks to digital transformation projects.