Maintain ADD on Wipro - Growth acceleration - HDFC Securities

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

We maintain ADD on Wipro, following a strong revenue performance (the best in nine years) and better-than-expected margin performance. Revenue growth of 3.4% QoQ CC was broad-based and 4Q growth guidance of +1.5- 3.5% indicates continued growth momentum. The deal pipeline remains strong and the company won 12 deals of TCV greater than USD 30mn. The total TCV stood at USD 1.2bn, which includes Metro AG (TCV of USD 700mn). Wipro under the new structure will be more agile and will focus on accelerating growth, supported by large deal wins, leveraging partner ecosystem, and higher investments in talent. Key positives include (1) strong guidance, (2) pick-up in deal wins, (3) robust cash generation (OCF of ~149% of net income), and, (4) 246bps QoQ improvement in IT services margin. We increase our FY22/23E EPS by +6.6/6.3% and target multiple to 20x (vs. 18x earlier) to factor in better growth visibility. Our target price of Rs 470 is based on 20x Dec-22E EPS (~20% discount to INFY). The stock is trading at 23.2/20.8x FY21/22x EPS.

3QFY21 highlights: (1) Revenue growth of 3.9% QoQ (est. of +3.5% QoQ); (2) IT Services EBIT margin at 21.7% (the highest in last 23 quarters) was supported by lower employee cost (+221bps) and operational efficiency (+25bps); (3) Growth was led by Consumer/ENU/Healthcare/Technology; (4) BFSI growth was weak but will catch up; (5) Offshoring stood at 52.7% (+270 bps QoQ) and Utilisation at 86.3% is nearing a peak; (6) Wage hike in 4Q for 80% of the employees will impact margins.

Outlook: We have factored in -1.6/+8.6/+5.5% USD revenue growth for FY21/22/23E respectively; implying 4Q revenue growth of 3.2%. IT services EBIT Margin factored in at 20.6% for 4Q and 20.0/20.5% for FY22/23E, resulting in EPS CAGR of 10% over FY21-23E.

Shares of WIPRO LTD. was last trading in BSE at Rs.454.45 as compared to the previous close of Rs. 458.75. The total number of shares traded during the day was 2500741 in over 30717 trades.

The stock hit an intraday high of Rs. 466 and intraday low of 431. The net turnover during the day was Rs. 1129142136.

Source : Equity Bulls

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