Wipro Ltd. share price target

While Wipro continues to lag growth within Tier-1 IT, its relative growth underperformance has reduced with growth moderation of larger peers. We reckon that growth will continue to lag peers ahead based on soft outlook on ~52% of rev comprising BFSI (earlier a growth driver), Mfg (re-structuring ME) and Technology (semicon sub-segment). This is expected to be offset by relatively stronger outlook in Consumer, Healthcare (ex-HPS) and E&U (large deals). While slowdown concerns remain (BFSI/large accounts-led) with limited scope of margin expansion (SG&A normalisation). The stock has corrected ~6% in 3M (following the buyback trade) and valuations are at ~13.7x FY21E (vs. 14.1x Tier-1 IT median). We expect USD revenue growth of 2.4/5.7/6.4% and IT services EBIT% at 17.9/18.0/18.2% for FY20/21/22E. We maintain NEU on Wipro post in-line revenue and operating performance. Increased headwinds in BFSI/large accounts offset the improving outlook in Consumer/Healthcare. Our TP of Rs 230 is based on 12x Sep-21E EPS.

Wipro (WPRO) reported in-line revenue growth of 1.1% QoQ CC, but a surprising beat on operating margins (18.1%, +10bps QoQ vs. 60bps est.) that materialised despite the impact of compensation revision.

WPRO: Puzzling margin beat; unlikely to hold up. Trade: Trade deficit narrows as imports shrink. Logistics: Demand climate deteriorates further

Q3FY20 guidance of IT services revenue growth of +0.8% to +2.8% is in-line with our expectation. WPRO expects the QoQ improvement in order-book in Q2FY20 to enable it to drive improvement in growth despite seasonal headwinds. We maintain our FY20/21E revenue. We factor the EBIT margin beat and fine-tune our FY20/21E EPs by 3%/2.7%. We now forecast IT services revenue (in US$) and EPS CAGR of 4.5% and 6.6% respectively over FY19-21E. We upgrade WPRO to ACCUMULATE from HOLD with a new TP of Rs269 (s. Rs260 earlier) based on PER of 15x FY21E. Key Highlights and Investment Rationale...

After remaining in double digit for around two years, WPRO's BFSI revenue growth decelerated sharply to 5.9% YoY CC owing to the completion of some large programs and the weakness in capital markets (in the US and Europe). Apart from this, HPS in healthcare remained another pocket of concern and is built in the company's revenue growth guidance of 0.8%-2.8% QoQ for 3QFY20. In dollar terms, revenue increased by 0.5% QoQ, implying a cross-currency IT Services EBIT margin shrank 30bp QoQ to 18.1%, 60bp below our estimate of PAT grew 12% YoY to INR25.6b a 14.4 % beat due to higher revenue in product business and lower ETR (18.3% vs. Weakness is more in Europe than in US, and more on Growth in healthcare vertical is coming, barring HPS; WPRO is recording good wins in digital.

Similar to TCS and Infosys, the Wipro management also has a cautious stance on the trajectory of the banking and financial services segment due to weakness in the capital markets space and European banking. Further, a delay in both digital projects renewal and ramp up of new projects in top client could impact banking growth for Wipro in the near term. However, besides this, the outlook for major verticals was positive with retail, healthcare (outside HPS), energy & utilities and global communication looking healthy based on the deal pipeline. The qualitative commentary...

booking & will impact on revenue conversion of deals. Inconsistency & volatility of revenue growth in Wipro among its key vertical makes us cautious. We believe IT companies will have to invest in digital & people to participate in the strong demand environment. Wipro's management aggressive cost rationalization keeps us skeptical about their participation in demand environment & hence will restrict their revenue momentum. Wipro's key verticals continue to be under pressure due to client-specific challenges (BFSI vertical), company-specific challenges (manufacturing...

Wipro delivered mixed set of numbers in Q2FY2020. The company delivered in-line revenue performance, while margins performance remained above our modest expectations considering salary revision and decline in utilisations. Constant currency (CC) revenue grew by 1.1% q-o-q, driven by strong performance in consumer and manufacturing vertical on a q-o-q basis. However, BFSI growth continued to remain muted owing to weakness in European banking and overall capital market. EBIT margin for IT services declined 30bps q-o-q to 18.1%, ahead of our estimates. Net profit of Rs....

Wipro witnessed 1.8% QoQ declines in IT Services revenue in Q1FY20 in dollar terms (-0.7% QoQ in CC terms and within the guided range of -1.0% to +1.0%). Sequential declines were primarily driven by weaker contribution from health business (-2.1% QoQ) and manufacturing business (-1.2%). Meanwhile, Consumer business continued to witness strong growth (+6.9% QoQ), followed by BFSI (+2.9%) and technology vertical (+1.4%). Geographically, revenue growth in India remained strong (+12.0% QoQ), which was more than offset by slowness in all other regions with ROW declining...