WIPRO - Wipro Ltd. Share Price

Wipro's management has provided a cautious yet optimistic outlook for the upcoming quarters. They anticipate a sequential growth in IT services revenue ranging from a decline of 1% to a growth of 1% in constant currency terms. This projection is underpinned by a strong order book and a healthy pipeline of prospective contracts.

In Q1 FY'26, Wipro reported IT services revenue of $2.59 billion, reflecting a quarter-on-quarter decrease of 2% in constant currency, yet remaining within guidance. The company's operating margin stood at 17.3%, demonstrating an 80 basis point year-on-year expansion.

Key forward-looking points highlighted by management include:

1. A substantial increase in bookings amounting to $5 billion in total contract value, representing a year-on-year growth of 51%, and an impressive leap of 131% for large deal bookings, reaching $2.7 billion.
2. Management conveyed confidence in closing significant deals, including two mega deals in BFSI, and expressed a strong pipeline leading into the second half of the fiscal year.
3. The company plans to maintain a focus on AI, with ongoing investments in both talent and technology, which are seen as critical areas for driving operational efficiency and competitive advantage.
4. As part of their capital allocation policy, Wipro has announced an interim dividend of INR 5 per share, reflecting a commitment to returning cash to shareholders while maintaining a dividend payout of 70% of net income over three years.

Overall, although challenges exist in specific sectors such as Europe and consumer markets, Dhirendra expressed confidence in operational improvements and future growth driven by strategic initiatives in AI and consulting-led services.

Here are the major questions from the Q&A section of the earnings transcript, along with detailed answers provided by the management:

1. Question: "Have we seen any kind of material increase in duration given that large deals are longer in tenure? How should we look at the ACV growth?"
   Answer: Yes, our total contract value (TCV) is outpacing annual contract value (ACV) growth as deal tenors increase. Our pipeline balances vendor consolidation with data and AI projects, which tend to have shorter tenors. The dominance of large deals in our pipeline is indeed affecting overall ACV growth as discretionary spending focuses heavily on cost takeouts.

2. Question: "Have the last two dividends indicated a decisive move towards dividends, and is buyback no longer considered?"
   Answer: We have raised our capital allocation policy to at least 70% of net income over three years, preferring dividends and emphasizing that buyback remains an option still on the table for the future.

3. Question: "How should we think about margins, considering the executed deals may impact them?"
   Answer: We do not provide explicit margin guidance, but we have seen good operating margin improvement recently. The significant volume of large deal bookings has a good balance of renewals and expansions, but we do anticipate some margin pressures from upfront investments required to fulfill these deals.

4. Question: "What initiatives helped win deals in areas traditionally not strong for Wipro?"
   Answer: We focused on being consulting-led and AI-powered, targeting five strategic sectors. Investments in domain expertise allowed us to engage effectively with clients' modernization and AI needs, resulting in significant wins in areas where we previously had limited presence.

5. Question: "How confident are you that TCV growth will result in meaningful revenue growth, considering historical revenue declines despite TCV increases?"
   Answer: Our strong Q1 bookings and pipeline provide confidence that we will see second-half revenue growth. Many of these deals will transition within 3 to 6 months, aiding this growth trajectory.

6. Question: "What is the current status of client-specific challenges impacting Europe?"
   Answer: Client-specific challenges in Europe are largely resolved, and we anticipate stabilization and growth in the second half of the year, driven by a strong pipeline and the Phoenix deal.

7. Question: "How has the discretionary spend environment evolved, particularly in sectors outside BFSI?"
   Answer: Discretionary spending is returning in sectors such as retail, where AI-led projects are being implemented. These projects help clients optimize and modernize their offerings, reflecting an upward trend in investment across sectors.

8. Question: "What kind of investments are causing margin pressure due to large deal execution?"
   Answer: Our investments focus on resource allocation for deal transition and execution, including program management and workforce adaptation to client environments, which come with additional costs but are necessary to meet our commitment.

9. Question: "Could you elaborate on the pipeline and deal dynamics specific to Capco?"
   Answer: Capco has shown strong growth across various sectors, particularly in the U.S. and APMEA, with a robust pipeline expected to continue momentum. We've seen year-on-year growth despite broader market challenges, showcasing our agility and adaptability.

These responses are trimmed but maintain the essence of the management's communications during the Q&A session.