Maintain ADD on Wipro - Revving up the growth engine - HDFC Securities

Mr. Amit Chandra & Mr. Apurva Prasad, Institutional Research Analyst, HDFC Securities

We maintain ADD on Wipro, based on better than expected revenue and in-line margin performance. Revenue growth of 2% QoQ CC was broad-based and guidance of +1.5 to +3.5% QoQ CC growth in 3Q is better than expectation. The deal pipeline remains strong and sales activity is picking up driven by higher cloud adoption. The company under the new leadership will increase focus on client mining/large deal wins, leveraging partner ecosystem and higher investments in talent. The goal is to make the organisation more lean operationally and deliver profitable growth. Key positives include (1) strong guidance despite furloughs, (2) pick-up in deal activity/wins, (3) robust cash generation (OCF is ~179% of net income), and (4) buyback of Rs 95bn (4.2% of equity, ~30% of net cash) at Rs 400/share. We increase our FY22/23E EPS by +2.6/4.7% and target multiple to 18x (vs. 16x earlier) to factor growth acceleration. Our target price of Rs 390 is based on 18x Sep-22E EPS. The stock is trading at 18.2/16.8x FY22/23x, which is ~20% premium to 5Y average P/E multiple.

2QFY21 highlights: (1) Revenue growth of 3.7% QoQ (est. of +1% QoQ) (2) IT Services EBIT margin at 19.2% (+14bps QoQ) was in-line with expectation (3) Growth was led by BFSI/Communication/Consumer and Healthcare offset by ENU/Technology (4) Acquired Eximius Design (revenue USD 35.2mn, +59% YoY) for a sum of USD 80mn (P/S of ~2.3x).

Outlook: We have factored in -2.5/+6.7% USD revenue growth for FY21/22E respectively; FY21E implies 3Q/4Q revenue growth of +3.0/+1.7%. Outlook is positive for BFSI/Consumer vertical and ENU/Tech will bounce in 3Q. Salary hike will be effective Dec-20.

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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