- Revenue rose 5.5% YoY, topping estimates, but EBITDA fell 4.3% YoY.
- EBITDA margin slipped to 18.6% from 19.5% in the prior quarter.
- Profit after tax (PAT) dropped 6.6% YoY, missing consensus.
- Europe and APMEA keep growth momentum; the Americas remain a drag.
- Valuation sits near 20x FY27E earnings – a potential entry point if the cost curve flattens.
Most investors skim the top line and miss the warning in the margins. That’s where the real story begins.
Wipro Revenue Beats Estimates but Margin Erodes
The latest quarter delivered INR 235,558 million in revenue, a 5.5% year‑over‑year increase and a 3.8% sequential gain. The figure beat the consensus of INR 226,313 million, underscoring solid demand in Europe and the APMEA region. However, the celebratory tone evaporates once we look at earnings. EBITDA fell to INR 43,785 million, a 4.3% YoY decline, and the EBITDA margin shrank to 18.6% from 19.5% in Q2FY26. The profit after tax (PAT) slipped further to INR 31,450 million, missing the forecast by 1.6% and pushing the PAT margin down 106 bps quarter‑over‑quarter.
What the Declining EBITDA Means for the Indian IT Sector
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) is a proxy for operating cash flow. When EBITDA margins contract, it signals either pricing pressure, rising costs, or a mix of both. Wipro’s higher employee expenses and elevated G&A spend are the primary culprits. The cost‑inflation trend is not unique to Wipro; the entire Indian IT services industry is grappling with wage hikes and the need to up‑skill talent for cloud and AI projects. A sustained margin compression could force firms to rethink pricing models or accelerate automation to protect profitability.
Competitor Landscape: Tata, Infosys, and HCL’s Response
While Wipro wrestles with margin pressure, peers are taking divergent paths. Tata Consultancy Services (TCS) reported a 2% margin expansion in the same quarter, leveraging its higher‑value digital contracts and a more balanced geographic mix. Infosys, on the other hand, posted a modest margin dip but offset it with a stronger U.S. sales pipeline, indicating that regional diversification can buffer cost spikes. HCL Technologies has been aggressive in cost rationalisation, trimming headcount in lower‑margin segments, which helped it maintain an 18.9% EBITDA margin. Investors should watch whether Wipro can emulate these strategies or risk falling behind the sector’s margin leaders.
Historical Patterns: When IT Margins Contracted Before
Looking back to FY2020‑21, the Indian IT sector saw a similar margin squeeze as the pandemic accelerated digital transformation demand while simultaneously inflating talent costs. Companies that invested early in automation and higher‑margin services (e.g., cloud migration, cybersecurity) recovered faster and even outperformed the broader market. Those that relied heavily on legacy maintenance contracts experienced a prolonged earnings dip. The lesson for Wipro is clear: pivoting to higher‑margin services could be the catalyst to reverse the current trend.
Sector Trends: Cloud, AI, and the Cost‑Structure Challenge
The macro backdrop is a rapid shift toward cloud-native solutions and AI‑enabled services. These offerings command premium pricing but require up‑skilled personnel and often involve partnership fees with hyperscalers (AWS, Azure, GCP). Consequently, the cost base rises faster than revenue in the short run. Companies that can quickly scale these services while controlling payroll and G&A expenses will protect their EBITDA margins. Wipro’s recent strategic hires in AI and its alliance with Google Cloud suggest a long‑term play, yet the near‑term impact on margins remains negative.
Investor Playbook: Bull vs Bear Scenarios
Bull Case: If Wipro successfully translates its Europe/APMEA momentum into higher‑margin digital contracts, the EBITDA margin could stabilize above 19% by FY27. The 20x FY27E P/E implies a modest upside of 8‑10% from current levels, assuming earnings grow at the projected 1.1% CAGR. A disciplined cost‑containment program and faster execution of AI‑driven services would validate the “ACCUMULATE” rating.
Bear Case: Persistent G&A inflation, slower-than‑expected digital win rates, and a soft Americas market could push EBITDA margins below 18% through FY27. At a 20x multiple, the stock would be overvalued, exposing investors to a 12‑15% downside. In that scenario, a shift to a “SELL” stance would be prudent.
Bottom line: Wipro’s top‑line beat is encouraging, but the real investment decision hinges on whether the company can arrest margin erosion and transition to higher‑value services. Keep an eye on cost‑control initiatives, the Europe/APMEA pipeline, and how quickly AI and cloud projects translate into billable revenue.