- Q3 revenue up 1.4% QoQ, matching estimates, but organic growth is fragile.
- Harman integration may dilute service margins through FY27 before benefits appear in FY28.
- Large‑deal pipeline shows YoY strength (+77%) yet execution risk persists.
- Sector peers like Tata and Infosys are navigating margin pressure differently.
- Our valuation assigns a 17x FY28 EPS multiple, implying a target price of ₹260.
Most investors skim the headline 1.4% rise and miss the margin warning baked into Wipro’s roadmap.
Why Wipro's Q3 Revenue Growth Masks Underlying Execution Risk
Wipro reported a quarter‑over‑quarter (QoQ) constant‑currency (CC) revenue increase of 1.4%, essentially in line with the consensus estimate of 1.5%. The uptick was driven primarily by the ramp‑up of the Phoenix deal and the early stages of the Harman integration, which together contributed roughly 0.8 percentage points. Even with the usual seasonal dip in the Capital Markets (Capco) segment, organic growth of 0.6% QoQ was positive, buoyed by Fin‑Services and other business units.
However, the optimism is tempered by a looming execution deferment on a marquee deal – the NN component – that is expected to dent Q4 organic growth. The research notes project Q4 organic growth in a narrow corridor of –1.5% to +0.5% QoQ, effectively relying on a two‑month inorganic boost of +1.5% to keep the headline flat. This guidance reflects a softening in the pipeline and a realistic acknowledgment that the Capco seasonality improvement in Q4 will be modest.
How the Harman Integration Could Erode Service Margins Through FY27
The acquisition of Harman, while strategic for expanding Wipro’s automotive and IoT capabilities, carries a near‑term margin penalty. The firm estimates its adjusted IT services margin will sit at 17.4% in FY26, dip slightly to 17.1% in FY27, and recover to 17.5% by FY28 as integration synergies materialize. The temporary dilution stems from higher cost structures in the newly absorbed hardware‑focused units, which are less profitable than Wipro’s traditional high‑margin software services.
For investors, the key is timing: the margin trough in FY27 could compress earnings, creating a valuation dip, but the upside in FY28 hinges on successful cross‑selling and cost rationalisation. The 17x FY28 EPS multiple we apply assumes the margin rebound is fully realised.
Sector Pulse: What Tata Consultancy and Infosys Are Doing Differently
Wipro is not alone in wrestling with integration and margin pressure. Tata Consultancy Services (TCS) and Infosys have both adopted a “digital‑first” acquisition strategy, focusing on high‑margin cloud and AI platforms rather than hardware‑centric assets. TCS’s recent acquisition of Postbank Systems added a low‑margin legacy portfolio that it quickly off‑shored, preserving its 23% adjusted margin. Infosys, on the other hand, has emphasized organic growth in its Fin‑Services arm, achieving a 2.1% YoY revenue bump in Q3 without a single large‑deal deferment.
These peers illustrate two alternative pathways: either absorb a low‑margin business and endure a short‑term dip (as Wipro may face) or prioritize high‑margin digital assets that keep the earnings curve smooth. The market is already rewarding the latter, evident in the premium multiples enjoyed by TCS (≈30x FY28 EPS) and Infosys (≈28x).
Historical Parallel: The 2018 IT Services Consolidation Cycle
When HCL Technologies acquired IBM’s Application Services in 2018, analysts warned of a margin squeeze similar to Wipro’s current predicament. HCL’s adjusted margin fell from 22.8% in FY18 to 21.1% in FY19, before rebounding to 23.5% in FY21 after it successfully cross‑sold legacy services to its cloud portfolio. The lesson: integration‑driven margin dips can be temporary, but they require disciplined execution and a clear roadmap for leveraging the acquired capabilities.
Wipro’s timeline—margin dip in FY27 with recovery in FY28—mirrors the HCL pattern, suggesting that the market’s reaction may be more about execution certainty than the mere fact of integration.
Investor Playbook: Bull vs Bear Cases for Wipro Through FY28
Bull Case
- Large‑deal pipeline sustains YoY booking growth of 25%.
- Harman integration yields $200 million of cost synergies by FY28, lifting margins to 17.5%.
- Digital services win‑rate improves, driving higher‑margin revenue mix.
- Valuation multiples compress to 15x FY28 EPS, generating a 15% upside to the ₹260 target.
Bear Case
- Execution delays on the NN component push Q4 organic growth to –1.5% QoQ.
- Margin dilution persists through FY27, eroding EPS and prompting a multiple contraction to 12x FY28.
- Competitors capture share of high‑margin digital contracts, weakening Wipro’s top‑line visibility.
- Target price falls below ₹230, implying a 12% downside.
Given the current guidance and sector dynamics, we retain a HOLD stance, monitoring execution milestones and margin recovery signals closely.