Wipro - Q2FY21 First Cut - ICICI Securities

(CMP - Rs. 376; MCap - Rs. 2,14,739 crore)

Wipro reported a healthy set of Q2FY21 numbers. IT services revenues increased 2.0% QoQ in constant currency (CC) terms above our estimate of 1.1% growth in CC terms. The IT service EBIT margin increased 30 bps QoQ to 19.3% vs. our estimate of 19.2%. On the overall basis, EBIT margins increased 55 bps QoQ mainly led by profit (vs. expected loss) in India state run enterprise (ISRE) segment. Wipro guided that its Q3FY21E IT services revenues would be in the range of $2022 -2062 million, which translates to 1.5%-3.5% QoQ growth.

Key highlights of the quarter were: 1) The company has declared a buyback of ~23.8 crore shares from the shareholders of the company on a proportionate basis by way of a tender offer. The buyback price is Rs. 400 per equity share payable in cash for an aggregate amount not exceeding Rs. 9500 crore (~4.4% of market cap). 2) The company's net utilisation increased by 240 bps QoQ to 86.9% and attrition declined by 200 bps QoQ to 11.0%. 3) The company added 12000 employees of which 3000 were fresher and net addition stood at 3439 4) localisation was at 71.9%. 5) Growth in terms of verticals was led by BFSI increasing 3.7% QoQ, Manufacturing 3.5% QoQ, Communication 4.6% QoQ, consumer business unit 4.5% QoQ partially offset by decline in energy and technology verticals, which declined by 2.4% QoQ and 4.7% QoQ, respectively. Geographically, the company's revenue growth was led by Americas and RoW, which grew 2.2% QoQ and 3.7% QoQ.

Q2FY21 Earnings Summary

- In constant currency, global IT services revenues grew 2.0% sequentially, above our estimate of 1.1% growth. US$ revenues grew 3.7% QoQ to $1,992.4 million (vs. our estimate of US$1,967.7 million)

- Consolidated revenues marginally grew 1.4% QoQ to Rs. 15,115 crore. IT services revenues grew 1.2% sequentially to Rs. 14,768 crore while volatile IT products division declined 25.1% QoQ to Rs. 169.1 crore

- IT services EBIT margin expanded 30 bps QoQ to 19.3% and was in line with our estimate of 19.2%. On an overall basis, EBIT margins increased 55 bps QoQ mainly led by profit (vs. expected loss) in India state run enterprise (ISRE) segment

- Reported PAT came in below our estimate at Rs. 2,466 crore (vs. our estimate of Rs. 2,598.1 crore) mainly due to lower than expected other income

- Wipro guided that its Q3FY21E IT services revenues would be in the range of $2022 -2062 million, which translates into 1.5%% to 3.5% QoQ growth

- Wipro has declared a buyback of ~23.8 crore shares from the shareholders of the company on a proportionate basis by way of a tender offer. The buyback price is Rs. 400 per equity share payable in cash for an aggregate amount not exceeding Rs. 9500 crore (~4.4% of market cap)

- The company has announced that it has signed a definitive agreement to acquire Eximius Design, a leading engineering services company with strong expertise in semiconductor, software and systems design. The company will acquire 100% stake at US$80 million (~Rs. 584 crore) at an EV/Sales of 2.2x. Eximius Design is privately held and has around -1,100 employees

Healthy quarter, improving margins and improving revenue trajectory prompt us to be positive on the stock. We would be revisiting our estimates and target price post the conference call.

Shares of WIPRO LTD. was last trading in BSE at Rs.350.15 as compared to the previous close of Rs. 375.75. The total number of shares traded during the day was 2098539 in over 29023 trades.

The stock hit an intraday high of Rs. 366.6 and intraday low of 348.5. The net turnover during the day was Rs. 742132268.

Source : Equity Bulls

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