Wipro - Rating: BUY; Target Price: Rs650 - Centrum

We expect Wipro to start matching industry growth and think that it has put its legacy portfolio issues largely behind it. We expect new account traction to be led by Analytics, Regulatory and Risk Consulting but with some drag on India services revenue and an overall 1% revenue impact from the divestment of IT products.

With wage hikes behind it, we expect Wipro to improve its EBITDA margins by ~110bps as offshore utilization moves up (by ~150bps QoQ) and S&M investments start showing some leverage through currency benefits after the rupee strengthened slightly.

We continue to expect that large deals and improved BFSI traction will help Wipro post growth at least in-line with industry over FY15. We also note that Wipro's utilization and employee experience pyramid have room for improvement and expect both to improve over FY15 and FY16.

Earnings estimates maintained, new Dec'14 target price of Rs 650: We maintain our estimates for Wipro. We introduce a new Dec'14 target price of Rs650 (14x 1-year Fwd EPS at Dec'14) and maintain our BUY rating on the stock. We note that Wipro is trading currently at 15.1x 1-year Fwd EPS after the recent run-up suggesting that the discount to TCS and Infosys was narrowing as the growth gap has shown signs of reducing. We expect that a good quarterly guidance can be the only near-term positive trigger for the stock now.

Source : Equity Bulls

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