Wipro continues to lag its large-size peers, what with the company now falling behind substantially on margins as well, even as client-specific write-offs hurt profitability. But the company did have a few positives going for it during the March quarter. Operationally, a few large deals that it managed to win, healthy traction among top customers and steady growth in its BFSI segment are confidence boosters for investors. During the March quarter, Wipro’s revenues (IT services) grew by 2.4 per cent sequentially, higher than Infosys’ 1.8 per cent, but lower than TCS’ 3.9 per cent.

But its operating margins for the quarter slipped to 14.4 per cent, the second successive period of decline, as one of its telecom clients (probably Aircel) filed for bankruptcy. This is a good 2-3 percentage points lower than what it managed in the first two quarters of FY18. The operating margins of Infosys and TCS are in the 24-25 per cent range.

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Operational positives

Wipro added 3 clients in the $75 million bucket during the quarter and 5 in the $50 million category, which compares favourably with what Infosys bagged during the period. It also mined its top 10 customers well and has been able to derive a higher proportion of revenues from these clients.

The BFSI (banking, financial services and insurance) vertical has been steadily increasing contribution to revenues for the company.

In fact, the segment has grown at a faster pace than the overall company’s revenue rate for 4-5 quarters now.

Utilisation, at 83.4 per cent compares favourably with most peers, though attrition (16.6 per cent) is increasing steadily. In fact, Wipro has a lower employee count in FY18 that it did in the previous year.

Trading at a discount

For the FY18 fiscal, Wipro has grown at little more than half the overall industry’s rate. Trade body Nasscom has projected a 7-9 per cent growth rate for the IT industry in FY19. Wipro may find it an uphill task to match even the lower end of the band.

For the June quarter, a seasonally strong period, Wipro has guided for $2,015-2,065 million revenues, implying a sequential decline of 2.2 per cent to flat growth at the upper end.

Surprisingly, the market still accords Wipro a valuation multiple of 17 times its trailing earnings, a tad higher than what is accorded to Infosys and HCL Technologies, despite their much higher growth rates. TCS though is leagues apart at 25 times trailing earnings.

Given the lower growth trajectory and margin profile, the Wipro stock may be headed for at least a bit of de-rating.