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Maintain ADD on Wipro - Continued growth momentum - HDFC Securities

Posted On: 2021-10-14 22:39:08 (Time Zone: IST)


Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities and Mr Vinesh Vala, Institutional Research Analyst, HDFC Securities

Wipro delivered a strong revenue performance in Q2; organic growth of 4.6% QoQ (following +4.8%) was ahead of guidance and estimates. The total revenue growth of +8.6% QoQ CC (including Capco and Ampion) was broad- based and Q3FY22E guidance of +2-4% QoQ was in line with estimate. Wipro has revived its growth engine and aligned its organic growth for FY22E (~16% YoY) in line with larger peers'. The deal pipeline remains robust with a good mix of large deals. Wipro closed more mid-sized deals in the quarter; TCV was up 19% YoY and ACV was up 28% YoY. The IT services margin registered a decline in Q2, led by Capco, supply side challenges, wage hikes, increasing sub-con costs and higher intake of freshers (8K in Q2) to offset the near-term attrition surge. The ongoing talent crunch will keep margins under check in the near term, offset by higher offshoring, utilisation, and operating leverage. We increase our revenue estimate for FY22/23E by +1.4/2.5% to factor in better growth visibility. Our target price of INR 690 is based on 24x Dec-23E EPS (~20% discount to INFY). The stock is trading at 27/22.4x FY23/24E EPS. Maintain ADD.

Q2FY22 highlights: (1) Revenue growth of 6.9% QoQ (est. +5.5% QoQ) was at the higher end of the guided range; (2) IT services' EBIT margin stood at 17.8% (-126 bps QoQ, estimate of 18.5%), impacted by two months of wage increase for senior executives and rising attrition; (3) Growth was led by BFSI/communication/consumer/technology verticals; (4) Offshoring stood at 55.6% (+160bps QoQ), utilisation stood at 89.2% (+240bps QoQ), and attrition increased to 20.5% (+500bps QoQ); (5) Wipro will roll out the wage hike for 80% of its employees, effective Oct 2021.

Outlook: We have factored in +27.6/+12.8% USD revenue growth for FY22/23E respectively, which implies Q2-Q4FY22 CQGR of 3%. The IT services EBIT margin is factored in at 18.2/18.5% for FY22/23E, resulting in an EPS CAGR of 15.1% over FY21-24E.

Shares of Wipro Limited was last trading in BSE at Rs. 707.55 as compared to the previous close of Rs. 672.55. The total number of shares traded during the day was 1883326 in over 35751 trades.

The stock hit an intraday high of Rs. 739.80 and intraday low of 695.00. The net turnover during the day was Rs. 1351463549.00.


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