Wipro is a leading Indian multinational corporation that provides global information technology, consulting and business process services. The company was incorporated in 1945 as a manufacturer of vegetable and refined oils. In 1970-80, ‘Western India Palm Refined Oil Limited’ (now known as Wipro) shifted its focus towards the Indian IT industry. Under the leadership of Azim Premji, Wipro reached new heights, not only domestically but globally. Today, the company stands as the 4th largest IT company in India based on market capitalisation.
Decoding Q2 FY21 results
Wipro announced their Q2 FY21 results just after the market hours on 13th October 2020. There was a sense of optimism in the market that the company is going to declare good numbers. And, this is what exactly happened! Wipro reported a decline of 3.4% YoY in net profits. At the same time, their net profits increased by 3.2% as compared to the previous quarter.
The revenues and net profits amassed for this quarter are Rs 15,114.50 crore and Rs 2,465.70 crore respectively. These numbers defeated a few market estimates and were on par with the others. Next day after the result, Wipro’s share price dropped by 7.06% to close at Rs 349.40. This could have happened as the investors look to book profits when the core reason for the rally is achieved. You must have heard the saying, “buy on rumours sell on news”. We believe this is what occurred today with Wipro in the market.
Due to fewer business projects during the pandemic, many big companies are laying off their employees. This leads to a negative sentiment among the market participants. Wipro has done exactly opposite to this! They have hired 12,000 employees including the onboarding of 3,000 employees in the second quarter itself. This speaks how the business of Wipro is expanding even in these testing times.
Operating revenue and profit tells how much a company is able to earn from their core business. If a company’s core business is not performing well, then it’s a red signal for the investors. Wipro’s operating profits have risen by 5.2% YoY and 4.4% QoQ. These are amazing numbers considering how the companies are trying to do business during the COVID-19 times.
The major announcement which everyone was waiting for was of the share buyback. And yes! Wipro did officially declare a share buyback of 23.75 million equity share for Rs 400/ share. On 13th October 2020, Wipro closed at Rs 375.75. It means that promoters will buy the shares back at a premium of 6.45%. With this, Wipro became the second IT company to announce a share buyback after TCS in this quarter.
Why does share buyback have this hype? A company conducts a share buyback only when they believe that they are financially stable. This step shows the investors that the company is bullish about the company’s growth. They are willing to buy the shares at a higher price than the market price and are confident enough to take it even higher. Any company cannot be in a position to buy back shares until it has huge cash reserves. Wipro has registered an amazing 37.5% YoY rise in their operating cash flows. To know more about share buyback, click here.
The Price Uptrend
When the fear of coronavirus became real in March, Wipro’s share price faced a steep fall in the market. On 4th March, their share price was trading at Rs 229.70. On March 19, prices dropped to its 52-week low at Rs 162.35. Since then, Wipro’s share price has witnessed a constant rise.
On 13th October, their share price was last traded at Rs 375.20. Two days back when the rumours of Wipro’s share buyback was heard in the market, their share price touched it’s all-time high at Rs 381.70. You can see the upward movement in the chart below.
(Wipro’s share price making new highs after collapsing from Covid crash)
In the past week itself, Wipro’s price has risen more than 12%! This shows how bullish people are with the stock. If you are following The Stock Market Show on Youtube, you would have realized how Nifty IT has been aiding Nifty 50 to rally upwards. Wipro has been one of the most important players to force that rally. As we mentioned above, post-result a significant fall in the share price was noticed. Yet, we believe that a company like Wipro which is fundamentally very strong will contribute immensely to the future of Indian IT industry.
Expectation in future
Wipro’s board is confident that the company will continue to climb the ladder in the coming future as well. They expect next quarter’s revenue from IT services to be between $2,022 million (Rs 14,815 crore) to $2,062 million (Rs 15,108 crore). That will cumulate to be a QoQ growth of 1.5%-3.5%.
“I am very excited about the opportunities that are ahead of us and encouraged by the acceleration in business momentum we have seen this quarter. Our strategy is to focus on growth in prioritised sectors and markets led by vertical solution offerings.” – Thierry Delaporte, CEO of Wipro.
The company also announced the acquisition of engineering services company Eximius Design for Rs 586.3 crore. Eximius Design provides end-to-end solutions and services using modern technological tools like Artificial intelligence, Cloud, IoT etc. They are into Product Engineering services, Design & Development services, Maintenance & Value Engineering and System Validation & Test Automation.
This acquisition will help Wipro to expand into newer market segments and strengthen market leadership in VLSI (Very Large Scale Integration) and systems design services. They would be able to enhance their client’s experience of using new-age technologies. The IT sector is one of the very few sectors which is flourishing during these dismal times. Unlike other jobs, people working in IT companies are able to operate from home easily. This helps the companies to save their fixed cost and invest in technological expansion.
During the pandemic, local lockdowns are very frequent. Due to this, most of the non-IT company depends on the services offered by IT companies like Wipro. This is why the IT stocks are giving huge capital appreciation returns to the investors in the market right now. How long will this trend continue? Also don’t forget that in the 21st century, large cap companies can give you multibagger returns in the long run. You can read Wipro’s press release here.