Wipro's Revenue Growth Meets Guidance, But Margins and Deals Raise Concerns
Wipro Ltd shares dropped sharply by 7% on Monday. This decline followed the company's December quarter results for the third quarter of fiscal year 2026. Investors reacted negatively to management commentary that highlighted subdued revenue growth and mounting margin pressures.
Revenue Performance and Guidance
Despite facing seasonal furloughs, Wipro's revenue growth for Q3 came close to the upper end of its guidance range. The company had projected growth between -0.5% and +1.5%. Sequential constant currency revenue increased by 1.4%. This growth received a boost of about 80 basis points from the recent acquisition of DTS Harman.
However, the overall picture remains mixed. Several shortfalls in other areas prompted analysts to downgrade their earnings estimates for the company.
Deal Wins and Pipeline Challenges
The total contract value of deals secured by Wipro declined significantly. It fell 29% sequentially and about 6% year-on-year to $3.34 billion. This figure compares poorly with over $4.5 billion in each of the previous two quarters.
Large deal bookings presented an even starker drop. They plummeted 69.5% year-on-year and 9.4% sequentially to $871 million. Wipro's deal wins continue to lean heavily towards large deals, which are inherently lumpy and unpredictable.
Management acknowledged that the overall deal pipeline remains healthy. Yet they also flagged concerning delays in the ramp-up of large deals won earlier. These delays could lead to uneven revenue growth and limit near-term visibility for the company.
Soft Exit and Future Projections
For the fourth quarter of FY26, Wipro has provided guidance for sequential constant currency revenue growth between 0% and 2%. This guidance includes an incremental two months' contribution from the Harman acquisition. The outlook points to a soft exit from the fiscal year.
Fewer working days and delayed ramp-ups of large deals are expected to weigh on organic revenue growth. According to Ambit Capital, Wipro's revenue is set to decline for the third consecutive year in FY26 by 1.6%.
A sharp rebound in FY27 appears unlikely despite potentially better deal wins. Wipro's deal flow has historically been offset by leakages, and overall demand remains uncertain. Ambit added that year-on-year growth is likely to remain flat or negative in key segments. These segments include BFSI, consumer, energy, natural resources, and utilities. Together, they contribute about 70% of Wipro's total revenue.
Margin Pressures and Future Outlook
IT Services Ebit margin showed a sequential increase to 17.6%, excluding one-time restructuring charges. This improvement was aided by rupee depreciation, better utilization rates, and effective cost control measures.
However, management expects margin dilution from the Harman acquisition. This is due to Harman's relatively lower margin profile. Potential wage hikes in the coming periods could further pressure margins. As a result, Wipro's margin gap with its peers could widen.
The company expresses confidence in sustaining margins within the 17% to 17.5% band. PL Capital expects full integration of Harman to dilute IT Services margins in FY27. Integration benefits are projected to begin accruing only in FY28. The firm estimates margins at 17.4% in FY26, 17.1% in FY27, with an improvement to 17.5% in FY28.
Valuation and Market Position
Wipro shares currently trade at a FY27 price-to-earnings multiple of 19x. This valuation is lower than larger peers who trade at over 20x. This valuation gap is likely to persist and could even widen if Wipro's earnings fail to catch up with market expectations.
The combination of revenue challenges, margin pressures, and deal execution issues keeps investors on tenterhooks. They await clearer signs of sustained improvement and growth momentum from the IT major.
