ADD on Wipro - Improving growth visibility - HDFC Securities

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

We maintain ADD on Wipro, following a strong revenue performance and better than expected margin performance. Revenue growth of 3.0% QoQ CC was broad-based and 1QFY22 guidance of +2-4% QoQ growth indicates a continuation of strong momentum. The deal pipeline remains robust and the company won 12 large deals (Telefonica) with a net-new TCV of USD 1.4bn. Wipro clocked a total TCV of USD 7.1bn (USD 2.6bn net new) for 2HFY21, which is impressive and provides growth visibility (~4% YoY growth from new deals). Wipro under the new structure is focusing on revving the growth engine led 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 ~137% of net income), and, (4) margin decline of only 64bps QoQ despite wage hike. We increase our FY22/23E EPS by +4.4/4.7% to factor in better growth visibility for FY22E. Our target price of INR 475 is based on 20x FY23E EPS (~20% discount to INFY). The stock is trading at 20.3/18.2x FY22/23E EPS.

4QFY21 highlights: (1) Revenue growth of 3% QoQ CC (est. +2.7% QoQ) was at the upper end of the guided range (2) IT Services EBIT margin stood at 21.0%, impacted by wage hike for ~80% of the employees (3) Growth was led by Consumer/Technology/BFSI/ENU verticals (4) Offshoring stood at 54.5% (+180bps QoQ), Utilisation at 86% (-30bps QoQ) and Attrition increased to 12.1% (+110bps QoQ) (5) Wipro will roll out wage hike for remaining 20% of employee effective June'21 and will be giving bonuses and promotions across the organisation.

Outlook: We have factored in +18.8/+8.5% USD revenue growth for FY22/23E respectively; implying 1QFY22 revenue growth of 3.0%. IT services EBIT Margin factored in at 20% for 1Q and 17.8/18.2% for FY22/23E, resulting in EPS CAGR of 10.2% over FY21-23E.

Shares of WIPRO LTD. was last trading in BSE at Rs.469.25 as compared to the previous close of Rs. 431. The total number of shares traded during the day was 5049338 in over 79418 trades.

The stock hit an intraday high of Rs. 473.5 and intraday low of 437. The net turnover during the day was Rs. 2344616283.

Source : Equity Bulls

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