Maintain ADD on Wipro - Best performance in a decade - HDFC Securities

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

Wipro delivered a strong revenue performance in Q1, with organic growth of 4.8% QoQ being the best of the past 10 years. The total revenue growth of 12% QoQ CC (including Capco) was broad-based and Q2FY22 guidance of +5-7% QoQ growth (~1.5-3.5% organic) indicates that the strong momentum would sustain. Wipro, under the new structure, has revived its growth engine and the organic growth for FY22E (~13-14% YoY CC) is in line with larger peers'. Its deal pipeline remains robust, and it has won eight large deals with TCV of USD 715mn in the quarter. The margin would register a decline of ~200bps in FY22E, in our view, due to integration of the low margin Capco acquisition, supply side challenges, expected wage hikes in Q2 and Q3, and higher intake of freshers (6K in Q2) to offset the near-term attrition surge. We increase our revenue estimate for FY22/23E by +3.4/3.6% to factor in better growth visibility. Our target price of INR 585 is based on 22x June-23E EPS (~20% discount to INFY). The stock is trading at 25.3/22.6x FY22/23E EPS. Maintain ADD.

Q1FY22 highlights: (1) Revenue growth of 12% QoQ CC (est. +9.4% QoQ) was higher than the upper end of the guided range. (2) IT services' EBIT margin stood at 18.8% (-222 bps QoQ), impacted by Capco integration and one month impact of wage increase for senior executives. (3) Growth was led by BFSI/communication/consumer/ENU verticals. (4) Offshoring stood at 54% (- 50bps QoQ), utilisation at 86.8% (+80bps QoQ), and attrition increased to 15.5% (+340bps QoQ). (5) Wipro will roll out the second wage hike for 80% of its employees, effective Oct 2021.

Outlook: We have factored in +25.8/+11.1% USD revenue growth for FY22/23E respectively, which implies Q2-Q4FY22 CQGR of 3.4%. The IT services EBIT margin is factored in at 18.2/18.5% for FY22/23E, resulting in an EPS CAGR of 14.7% over FY21-24E.

Shares of WIPRO LTD. was last trading in BSE at Rs.577.65 as compared to the previous close of Rs. 575.75. The total number of shares traded during the day was 1319818 in over 21170 trades.

The stock hit an intraday high of Rs. 589 and intraday low of 568.25. The net turnover during the day was Rs. 762484931.

Source : Equity Bulls

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