AI-Powered Consulting Will Expand Markets In Europe And Americas

Key Takeaways

• Strategic AI-driven solutions and major deals signal strong revenue potential and improved margins amid economic and tariff challenges.
  
• Leadership changes and strategic European reorganization aim to reverse the revenue decline and rejuvenate market engagement.
  
• Uncertain global conditions, declining revenue in Europe, and pricing pressures threaten Wipro's growth and margins amid cautious client spending.

Catalysts

Operates as an information technology (IT), consulting, and business process services company worldwide.

• Wipro has achieved significant strides with consulting-led, AI-powered solutions, winning major deals that indicate a strong pipeline and potential for revenue acceleration and enhanced margins due to AI-driven efficiencies.
  
• Despite recent macroeconomic challenges and tariffs, Wipro is seeing a strong pipeline of both large and smaller deals, particularly in Europe and the Americas, which is expected to drive revenue growth as these deals convert in the second half of the year.
  
• The integration and synergies between Wipro and Capco, especially in the BFSI sector with a focus on AI-powered solutions, reflect strategic growth that could stabilize and grow revenues, aided by a strong order book for asset and wealth management, cybersecurity, and consulting.
  
• The recent leadership changes and strategic reorganization in Europe, along with significant deal wins like the Phoenix deal, are expected to rejuvenate this key market and contribute positively to revenues, reversing the current downward trend.
  
• Wipro's focus on cost optimization, automation, vendor consolidation opportunities, and AI investment is aimed at maintaining or improving operating margins despite a challenging revenue environment, thus supporting future earnings growth.

Wipro Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wipro's revenue will grow by 5.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.0% today to 15.4% in 3 years time.
• Analysts expect earnings to reach ₹161.2 billion (and earnings per share of ₹15.37) by about April 2028, up from ₹124.0 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.8x on those 2028 earnings, up from 20.9x today. This future PE is greater than the current PE for the US IT industry at 27.0x.
• Analysts expect the number of shares outstanding to grow by 0.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.39%, as per the Simply Wall St company report.

Wipro Future Earnings Per Share Growth

Risks

• The global industry environment is uncertain, exacerbated by recent tariff announcements, which could negatively impact revenue as clients adopt a more cautious approach to spending.
  
• Wipro's IT services revenue declined by 2.3% for the full year FY '25, indicating potential challenges in maintaining revenue growth momentum.
  
• Europe, a significant market for Wipro, experienced a year-on-year revenue decline of 6.9%, which may continue to pressure overall revenue growth unless the market conditions stabilize.
  
• Expected pricing pressures from cost takeout and vendor consolidation deals could impact operating margins, as the company prioritizes growth in a competitive environment.
  
• The sequential revenue guidance for the next quarter is between negative 3.5% to negative 1.5%, indicating potential headwinds in short-term earnings due to macroeconomic factors and client spending behavior.

Valuation

• The analysts have a consensus price target of ₹277.494 for Wipro based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹335.0, and the most bearish reporting a price target of just ₹200.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹1047.3 billion, earnings will come to ₹161.2 billion, and it would be trading on a PE ratio of 27.8x, assuming you use a discount rate of 15.4%.
  
• Given the current share price of ₹247.5, the analyst price target of ₹277.49 is 10.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.