Downgrade Wipro to 'Hold', says Edelweiss

MUMBAI: Edelweiss has downgraded Wipro to ‘Hold’ with ‘Sector Underperformer’ rating after the company’s second quarterly results.

Wipro’s Q2FY11 revenues and net profits, though in line with estimates, lagged growth reported by large peers. Global IT revenues, at $1,273, grew a modest 5.7% Q-o-Q, while operating margins declined 240 bps to 22.2%.

Promotions, RSU charges and foreign currency impacted margin performance for the quarter. Net profit was reported at INR 12.85bn, down 2.5% Q-o-Q and up 9.8% Y-o-Y. Further, the next quarter (Q3FY11) constant currency revenue growth guidance, at 3.5-5.5%, seems a tad lower.

“Wipro is currently trading at P/E of 20.6x and 17.7x FY11E and FY12E earnings. This is at 18% discount to TCS’ valuations, which we see continuing given Wipro’s moderate growth outlook and slow pace of margin improvement, going forward. We, thus, downgrade the stock to ‘HOLD’ from ‘BUY’ and rate it ‘Sector Underperformer’ on relative basis,” the report said.