Buy Wipro - CMP: Rs.449, TP: Rs.480 - Prabhudas Lilladher

Q3FY13 in-line with expectation, but guidance cautious: Wipro reported another quarter of a weak revenue growth of 2.4% QoQ (TCS: 3.3%, INFO: 4.2%, HCLT: 3.6%), led by realization improvement 3.8% QoQ (Onsite: 3.6%, Offshore: 3.4%). However, volume decline by 1% QoQ is weaker by ~2pp compared to peers. Moreover, the company guided for 0.5% to 3% QoQ growth which accounts for fiscal uncertainty and possible delay in ramp-up. We see high likelihood of Wipro delivering quarter towards the upper end of guidance.

Investment to S&M to be steady: Wipro likely to have steady investment in S&M (i.e. not to grow ahead of revenue). We do not expect it to decline on a QoQ basis, neither do we expect as a percentage of revenue. The company's structure to mine its top clients (farming) have started showing results and so is new client addition (hunting). We see improved deal pipeline, pick-up in sales cycle and better win ratio to help pushing better growth in CY13.

Towards the tail end of restructuring: Wipro has gone through organizational restructuring over the last eight quarters. The restructuring has been a bumpy ride where it has seen changes at the senior management levels, organizational structure (Service verticalization), S&M investment and tail-trimming of clients. The company is now reaching the end of restructuring process.

Improved client composition and deal pipeline to give stronger CY13: Management indicated 1.7x stronger deal pipeline in Q3FY13 (v/s Q3FY12). Also, the deal wins have improved on QoQ basis. The company has reduced its non-productive tail of 80 clients to 20 with 181 new clients' addition since Q4FY12. We expect improved client composition (due to strong clients' addition and tail trimming) to result in improved business momentum in FY14.

Source : Equity Bulls

Keywords