Maintain 'BUY' on Wipro – TP Rs.420 - Geojit BNP Paribas

- Wipro's Q2FY13 USD services revenue was in line and within constant-currency (CC) guidance range.

- IT services EBIT margin fell only 30 bps QoQ, despite wage hikes, due to better realizations. The 1.2-3.2% Q3 services growth guidance, QoQ, even if unexciting, shows an improving trend.

- Management noted improved deal signings in late Q2, expected to be announced in Q3 and start contributing in Q4.

- Volumes were flat QoQ, but offshore-onsite realizations grew 1.1-1.4% CC, continuing a trend of productivity gains in fixed-price contracts that started last year.

- USD revenue growth is expected to pick up to 12.6% in FY14, from 6.2% in FY13.

- Wipro's demerger plan appears a positive step as it separates two unrelated entities, unlocks value for minority shareholders, increases free-float, and allows promoters to reduce holding and move closer to complying with SEBI requirements.

- The scheme appears fair in that it provides shareholders options to own only the pure-play IT business, or to also own the non-IT business through either equity or redeemable preference shares.

- Medium term, we see significant scope for Wipro to improve its still-inefficient cost structure once revenue growth picks up.

- Maintain BUY on Wipro with a Target Price of Rs.420 (Current price: Rs.367)

Source : Equity Bulls

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